Carillion collapse caused surge in insolvency
Construction insolvencies surged by 20% following the collapse of Carillion in early 2018, new figures show.
Some 780 construction companies entered insolvency in the first quarter alone, a fifth higher than in the same period a year previously.
A total of 2,764 insolvencies affected building firms in 2017‐2018 according to accountancy firm Moore Stephens – a jump of 6% on the previous year.
Thousands of subcontractors lost contracts and other work as a result of the collapse, leaving them with crippling levels of bad debt.
Numerous firms entered into insolvency as a direct result, as many of the sub‐contractors were involved in large‐scale international and UK developments.
Most were overly reliant on the contracts involving Carillion and in many cases were forced to write off money owed to them by the construction giant, a financial hit they were unable to overcome.
Higher costs of materials and rising import costs have placed further pressure on building firms, while late payments remain a major issue in the sector – Carillion’s payment terms, for example, extended to 120 days to pay suppliers.
More than 400 government contracts needed new companies to assist with their completion, while the government has provided financial support to assist with the completion of some major developments.
The liquidation of Carillion followed an extensive review of its operations, where it was decided that entering administration would not be possible.
To date, 2018 has proved to be a tough year for construction firms, and despite an uptake in business activity in the past few months, growth rates are slowing.
According to the IHS Markit/ CIPS UK Construction Purchasing Managers’ Index for September, the month saw the weakest upturn in output for six months.
Civil engineering projects were worst affected, while growth in commercial construction and housebuilding rose at a solid pace, albeit at a slower rate than in August.
By Phil Smith