Construction administrations rise on bad weather and spending cuts

A COMBINATION of bad weather and reduced public sector spending have caused administrations in the construction sector to rise for the first time in eight quarters, business advisers in Birmingham have said.

David Bennett, restructuring partner in Grant Thornton’s recovery and reorganisation practice, said provisional data for Q4 2010 showed 82 constructions had entered administration.

“In some cases, the severe weather conditions in the latter part of 2010 played a key part in the failure of some construction companies, where a halt in activity over a number of weeks was just enough to tip them over the edge,” he said.

“Local construction companies are also echoing the national picture, with the latest casualty Coventry-based GAJ Group, which went into administration at the end of January.

“These latest figures end the eight consecutive quarters of a decline in administrations, which had been assisted by improved market conditions and strategies put in place by businesses and the government to ride out the storm.”

He said taking into account a fall in the level of employment in the sector, Government spending cuts and the deferral of some projects, it was inevitable some construction businesses would have felt the pinch.

“Uncertainty over future business prospects remains and will not be helped by the increase in raw material prices as well as the latest VAT increase which will add more pressure to the sector,” he added.

Administrations across all sectors rose by 1.4% in Q4 to 642, up from 633 in Q3 – a 24.4% decrease on the same quarter in 2009 (849).

Mr Bennett said the rise reflected the increasing pressure many UK firms were facing. However, the figures were still way off their peak in Q1 2009, when 1,311 companies fell into administration.

“Increases in both direct and indirect taxes are starting to bite. The Government’s austerity measures will increasingly impact on the private sector economy as the cuts accelerate but the growing probability of a sustained rise in interest rates poses the biggest threat to companies with obligations to service large debts,” he said.