More than 2,700 construction companies have entered insolvency after the collapse of Carillion – a rise of 6%.
A total of 2,764 companies entered insolvency in 2017/18, up from 2,608 the year before, according to analysis of official figures by accountancy firm Moore Stephens.
The increase followed the liquidation of Carillion – at the time the UK’s second biggest construction company – in January 2018, which caused knock-on effects for the whole construction supply chain.
Some 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.
More than 2,700 construction firms entered insolvency in the past year
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.”
“Large construction companies are infamous for squeezing the profit margins of the contractors and subcontractors who work for them. These contractors often cannot negotiate against the terms set for them by their larger clients.
“SMEs and specialist subcontractors have been hit particularly hard by Carillion’s fall, as many of them will have relied on the giant for significant amounts of their work. It is also likely that these subcontractors would have had to write off virtually everything owed to them by Carillion.
“Payment delays should not be allowed to become any worse for construction companies. High import costs and rising costs of materials, added to the huge disruption caused by Carillion are also exacerbating the difficult climate currently being experienced by the construction sector."
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There seems to be two threads to these statistics, and whilst Carillion’s demise might become a turning point, it hardly masks the apparent, longer term trend. Longer term records would be instructive to see, but the implication here is that there’s recently been a 6-7% year on year increase, with a gross 20% ‘spike’ over 2 consecutive quarters. If Carillion were the sole reason for the spike, you might say that the net spike was about 14% or about 546 individual insolvencies attributable to it. The longer term trend might just be associated with the on-going volumetric increase in construction and the number of new businesses that start; possibly for one off opportunities and/or either become badly managed or just fail to keep winning work. Better granularity of the data (including the number of start-ups) is needed before too many conclusions are drawn.
I think it is more a case of ear marking Carillion in the hopes that the attitude and bad practice never happens again. Possible naïve.