Press Releases
31 May 2011
Double dip for construction sector as insolvencies jump 19%
- Drought in Government contracts leaves sector reeling
- Small companies could be forced to bear the brunt
The number of businesses going bankrupt in the construction sector has jumped by 19% in the last quarter to 948 (Q1 2011) up from 796 in the previous quarter (Q4 2010), says Wilkins Kennedy, the Top 22 accountancy firm.
It is the first quarterly rise in insolvencies* in two years (Q1 2009) and has stoked fears of another prolonged downturn for the sector. (See graph below)
Wilkins Kennedy explains that the cancellation of public sector building programmes, such as Building Schools for the Future, has driven this rise in the number of construction firms going bust.
Anthony Cork, Director at Wilkins Kennedy, comments: “The Government has slashed capital spending on infrastructure across the board in order to plug the deficit and that has pushed the construction sector into a double dip.”
“Fiscal stimulus at the start of the recession had included substantial infrastructure projects that keep the construction sector’s head above water. But that support is now being withdrawn.”
“The question now is how quickly private sector construction work will be able to pick up the slack left by the public sector. So far this has not happened.”
Experts estimate that public sector spending on construction projects represent about 40% of the industry's turnover. The Government is committed to halving this, with more than £90bn of capital spending cut between now and 2014.
Research from Barbour ABI reveals that the value of contacts awarded for construction projects fell to just £21bn in the year to May 2011, down from £34.6bn on the previous year.
Drought in public sector contracts will have widespread impact – could affect SMEs
According to Wilkins Kennedy the effects of the downturn in Government contracts is likely to be widespread as companies scramble to fill the void left by the reduced public sector spending.
Anthony Cork comments: “Large companies who typically win the most valuable public sector contracts will be forced to look at alternative projects. This is unlikely to fill the void completely and may force many large firms into price cutting, which will drive down the rates of smaller construction firms.”
“Many companies could be forced to pass their pain down through their supply chain, which will have a big impact on sub-contractors, electricians, plumbers and builders’ merchants as well as the rest of the ecosystem that makes up the construction industry.”
* Insolvency includes: Compulsory liquidations, Creditors’ Voluntary Liquidations, Receiverships, Administrations, Company voluntary arrangements (CVA), Trading-related bankruptcies.
Examples of insolvencies in the construction industry since recession
ROK Plc (In Administration – Nov 2010)
Connaught Plc (In Administration – Sept 2010)
John Laing Partnership Limited (John Laing Partnership was the social housing unit of John Laing Group before the two businesses split in 2002) (In Administration – Oct 2010)
CJ Haughey Construction (In Administration – Dec 2010)
Carvill Group (In Administration – May 2011)
www.wilkinskennedy.com
ENDS
Press Contacts:
Anthony Cork
Director - Insolvency
Wilkins Kennedy
Tel: 020 7403 1877
Nick Mattison or Gordon Carver
Mattison Public Relations
Tel: 020 7645 3636
