Construction and Insolvency in the UK 2023
Posted by Nilam Modhwadia, Graduate Recruitment Consultant on Sunday, October 22, 2023
Recently, I attended a Society of Construction Law event, which focused on the theme of Insolvency in Construction and the legalities behind recent court rulings. This seminar helped expand my knowledge in this area, and here are some of the key concepts I picked up on.
The construction industry in the United Kingdom has long been a vital contributor to the nation's economy. However, like any other sector, it faces its fair share of challenges in the current economic climate. For example, in the UK, the construction sector has had more insolvencies during the past five years than any other industry. At times, the construction industry in the UK finds itself navigating the complex terrain of insolvency, presenting both risks and opportunities for businesses in the field.
The State of the Construction Industry
The UK construction industry has experienced periods of fluctuation in recent years, influenced by factors such as economic conditions, government policies, and market demand. Despite this, it remains a significant employer and contributor to GDP. Insolvency in the construction sector has been a recurring concern for a variety of reasons. In 2023, some firms may still find themselves struggling due to issues like delayed payments, project disputes, and rising material costs. This can lead to financial distress and, in some cases, insolvency.
More than 4,000 construction UK construction businesses became insolvent in the last 12 months, according to data from the government’s Insolvency Service. The latest major contractor to stop trading was the Buckingham Group, becoming the largest contractor to go into administration since Carillion’s collapse in 2018. The following points can help dissect the main reasons as to why so many companies are becoming insolvent.
- Payment Delays: Slow payment practices have been a persistent issue in the construction industry. Late payments can disrupt cash flow, making it challenging for businesses to meet their financial obligations. In the end, missed payments and bad debts are what ultimately cause insolvency.
- Project Disputes: Legal disputes over project delays, quality issues, or contract disputes can strain resources and lead to financial instability. Such legal disputes are handled by construction lawyers and experts in Quantum and Delay, and with an increase in project disputes, we have also seen an increasing demand for Claims and Disputes professionals. Check out our current live Quantum and Delay vacancies for further information.
- Rising Costs: Fluctuations in material and labour costs can significantly impact construction companies' profitability and financial stability. According to data from the Office for National Statistics, the cost of construction materials has increased by 42.7% since January 2020.
- Brexit Impact: Changes in trade relations post-Brexit has also affect the availability and cost of construction materials as well as the cost of labour.
While insolvency can be daunting, construction companies can take steps to navigate these challenges effectively:
- Robust Financial Planning: Regularly assess your financial health, maintain accurate records, and create contingency plans to address potential issues.
- Hire good claims and disputes professionals: Disputes are almost inevitable in Construction, particularly in the current climate, and it is therefore crucial for companies to hire good quality, experienced claims and disputes staff. This is where Maxim Recruitment steps in. Maxim Recruitment has over 20 years’ experience in successful claims and disputes recruitment. Our strong relationships with key clients within the construction claims and disputes sector worldwide put us in a unique position to offer expertise within this sector. We continue to provide recruitment advice and solutions to our candidates and clients alike in these challenging times. Feel free to reach out to one of our specialist recruiters to find out more.
- Diversify Client Base: Project-specific issues can be lessened by reducing reliance on a particular client or project.
- Efficient Contract Management: Make sure your contracts are detailed and unambiguous so that they reduce disputes and safeguard your interests.
- Seek Professional Advice: In cases of financial distress, consult with insolvency practitioners or legal experts to explore options like restructuring or administration. Prior to impending insolvency, get counsel on your options for resolving disputes because adjudications cannot be brought against a firm that is in liquidation or administration.
Going into 2024, the UK construction industry will face both challenges and opportunities. Businesses can proactively manage risks through sound financial planning, efficient contract management, diversification, and hiring good quality staff. Maxim Recruitment does their best to help both companies and candidates in their employment search.
For a full list of current live vacancies in the UK and abroad, please see our jobs section or reach out to one of our consultants.