Rising costs and delays exacerbate construction company collapse
Supply chain disruptions, rising costs and not enough labour are causing the collapse of construction companies at an alarming rate.
The latest official UK insolvency figures show that during June the number of administrations was 45% higher month-on-month and 80% higher year-on-year, driven by approximately 260 “connected companies in the real estate sector” entering administration during March, April and June.
Responding to the May administration of AIM Engineering & Fabrication Group and Hescott Engineering Company – which led to the redundancy of 93 employees – Interpath’s Scottish head Alistair McAlinden said: “These administrations come against a backdrop of sustained turbulence across the construction and engineering supply chain, where rising costs, tightening margins and the loss of key contracts have created acute financial strain.”
Across the UK, the construction sector has historically experienced a greater number of insolvencies relative to most other business sectors.
McAlinden explained that this has to do with the volatile nature of overhead costs – materials, energy, etc – as well as the competitive nature of the industry, which means companies have not been able to fully pass on increases to customers, reducing operating profit margins and hitting cash flow.
“There is also a reduced labour pool, as a consequence of Brexit and challenges in encouraging younger people to pursue a career in construction, which has driven up the levels of pay which construction companies require to pay to maintain/grow their workforce – and pushed contractors towards greater use of more expensive subcontractors.
“These cost increases have also meant that certain larger scale development projects have been postponed or cancelled, as projects are no longer economically viable, meaning that certain construction firms have seen their future pipelines of work reduce,” he continued, noting that across certain part of the UK, there has been a reduction in demand for new homes and offices which, in turn, has reduced volumes of new work available to contractors.
“Construction remains a sector and is typically a bellwether for the wider economy, being one of the first sectors to see an uptick ahead of economic growth and suffer a downturn ahead of more difficult economic times.”
Michelle Elliot, partner at FRP Advisory, agreed that construction firms are having to navigate a difficult balancing act at the moment.
“There are some areas of the market where activity is beginning to improve, but most firms are still grappling with tight margins, rising operating costs and uneven project pipelines.
“This is one of the most complex decision-making environments in the mid-market, as it is capital intensive and exposed to changing regulation,” she stated. “Making the right decisions early enough is proving to be a major challenge for businesses, with our research finding that delayed decision-making is costing the wider UK construction sector more than £1bn in lost economic output every year.”
Michelle Elliot, restructuring advisory partner at FRP
Accountancy and advisory firm Menzies commissioned Censuswide to survey 250 finance decision-makers in UK construction and property firms during the spring, finding that 86% are already in or at risk of serious financial distress, with the average firm expecting to reach that point within eight months.
Late payments are now almost universal across the sector, with 93% of firms reporting delays from clients, contractors or supply chain partners running an average of 53 days overdue.
Nearly a quarter (23%) of firms said rising material and labour costs are putting unsustainable pressure on project margins. For those that signed contracts before inflation hit, the damage is already done: one in five stated that those contracts are now far less profitable than expected, and a further 18% said some have been delayed to the point of no longer being profitable at all.
The uncertainty caused by changes in US tariffs are adding a new layer of pressure, with 19% reporting that sourcing materials and labour is more difficult and costly, while 17% said the same of Brexit.
A quarter of those surveyed called for government action to stabilise material and energy costs, while nearly as many (24%) demanded the establishment of a single construction regulator to replace a fragmented system. Nearly a quarter (23%) want mandatory maximum payment terms for construction contracts, while one in five want protections and flexibility to renegotiate fixed-price contracts affected by inflation.
Freddy Khalastchi, partner at Menzies, said: “Too many construction businesses are still trading, still winning work, but heading in the wrong direction without realising it – a full order book can mask a lot of problems, and in construction the gap between looking busy and being profitable can widen faster than most owners appreciate.”
The Construction Industry Training Board’s (CITB) Construction Workforce Outlook 2026-30 suggested growth is expected to return to the industry over the medium-term, but that it continues to face ongoing pressures in recruiting and retaining the workforce it needs.
A CITB spokesperson told TheBusinessDesk that the industry faces a clear workforce challenge – too few people are entering construction and too many experienced workers are leaving, with the recent report showing that an average of 41,200 extra workers must be recruited every year between now and 2030 to meet forecasted demand.
“This is a structural challenge rather than a temporary one – to close the gap, we need to attract more people into rewarding construction careers, retain experienced workers for longer and ensure training is closely connected to real employment opportunities,” read a statement, noting that practical interventions include apprenticeship grants, support through the New Entrant Support Team and an Accelerated Apprenticeships programme.
“Alongside this, we are forming partnerships with mayoral authorities and other local partners to strengthen understanding of regional skills demand and ensure training provision is aligned to genuine vacancies and future workforce needs.”
Alison Condie, Scotland managing director at Barratt Redrow
Alison Condie, Scotland managing director for Barratt Redrow, said that while the Scottish and the UK governments have committed to reforms designed to unlock more development opportunities, too many viable sites are still stuck in prolonged determination periods and held up by resourcing gaps in local authority planning teams.
“Coupled with the industry’s expensive skills shortage, which requires around 10,000 additional workers by 2028 to meet demand, pressures are coming from multiple directions,” she commented.
“We need faster decision-making, better-resourced planning departments, stronger apprenticeship funding, and a system that matches the ambition of national housing targets with the capacity to deliver against them, both at planning and on site.”
Atul Kariya, head of property and construction at accountancy and advisory firm MHA, pointed to June’s construction PMI figures showing another month of severe weakness across construction; albeit with tentative signs that the pace of decline may be stabilising.
“The challenge is no longer simply winning work, but preserving liquidity, protecting balance sheets and maintaining resilience until confidence returns,” he said. “Contractors would rather protect margins than win turnover that creates future losses, which marks a clear shift from volume-led growth to disciplined, cash-focused decision-making.
“That has consequences beyond today’s workloads – weak demand now risks creating a labour shortage later if firms cut back on training, recruitment and apprenticeships.”
Kariya argued that the concern is not just individual workloads, but the resilience of the wider supply chain, as if subcontractors and specialist suppliers come under pressure, even well-funded schemes can face delays, cost inflation and delivery risk. “Periods of prolonged weakness often accelerate consolidation, as businesses with strong balance sheets may see opportunities to acquire capability or market share, while others will focus on survival, restructuring and protecting cash.”
Robert Ogg, managing director of Akela Construction
Robert Ogg, managing director of Akela Construction, agreed that the residential sector is experiencing heightened insolvency pressures, suggesting this is largely due to the legacy of rigid, fixed-price contracts, which offer limited flexibility against rapid, unpredictable cost increases.
“Recent geopolitical instability has driven up fuel prices globally, which unfortunately inflates the cost of everything from material production to onsite plant operations,” he explained. “On a day-to-day level, this creates significant cash-flow challenges across the delivery team, while managing inflationary cost increases fairly between clients and contractors is becoming increasingly complex; often leading to commercial delays that force supply chains to absorb expenses in the interim.”
Ogg added that this is further compounded by high interest rates, which have slowed the pace of new housing developments. “As housebuilders understandably adopt a more cautious ‘build-to-buy’ approach to manage risk, it inadvertently reduces the pipeline continuity and margin required for the wider supply chain to thrive.”
When project delays or commercial pressures occur at the top of a development, it can create a domino effect, leaving the broader supply chain to carry a disproportionate financial burden.
Compounding this are the cumulative costs of meeting new regulatory updates, such as the Building Safety Act and net zero mandates like solar panels, heat pumps, and electric vehicle chargers.
“Current market conditions and consumer affordability constraints mean these necessary development costs cannot simply be passed on to the homebuyer,” said Ogg. “Instead, both developers and sub-contractors are finding themselves in the difficult position of trying to absorb these overheads within already tight project budgets, putting immense pressure on traditional delivery models.”
On the recruitment crisis, he stated that the industry needs greater visibility over the future pipeline of work. “Contractors cannot confidently invest in human capital if they are looking at an uncertain horizon – transparency allows us to make sustainable investments in apprenticeships, training academies and collaborative initiatives like the CECA Scotland Academy.”
Andy Wyles, non-executive director at Lochay Homes
Andy Wyles, non-executive director of Lochay Homes, explained that rising fuel costs continue to push up the prices, from the creation of materials like flooring and plasterboard, to transport, logistics and on-site work.
“At the same time, more stringent regulations set out across the industry, although well-intentioned, inevitably add further cost to every build – with each change made to legislation we need to have the manpower and skills to implement it, and also deal with increased material and compliance costs.”
He agreed that planning delays remain one of the biggest frustrations on an industry level. “We’ve seen projects held back for months, making it harder to plan and keep homes moving through the pipeline, alongside ongoing uncertainty around mortgage rates, it creates a challenging environment for both housebuilders and buyers.”
Wyles continued: “As an independent housebuilder, we face additional challenges in securing subcontractors, who understandably prioritise larger volume builders during periods of uncertainty; there has been a knock-on effect across the whole supply chain.”
Lochay Homes has tried to become more proactive in managing the supply chain, strengthening relationships with trusted partners, planning procurement further in advance and identifying alternative suppliers.
“Internally, we’re continuing to embrace modern methods of construction and off-site manufacturing wherever appropriate – manufacturing components, like timber frames, in factory settings before they’re assembled on site can help improve efficiency and ease some of the immediate pressures created by labour shortages – however, that’s only part of the answer.”
David Owens, managing director at GBSS Civil Engineering, said that the biggest issue is getting projects from tender to site commencement.
“We are seeing a growing number of projects delayed by funding constraints, planning and statutory approvals, design development issues and clients decision-making processes – even schemes that have been tendered and awarded are often taking longer than expected to reach site,” he stated.
He also cited cost inflation and staffing issues, noting that there is an ageing workforce across many trades, plant operations and supervisory roles. “Recruiting experienced operatives, engineers, site managers, and quantity surveyors is increasingly difficult, while attracting younger people into construction is still a challenge – the concern is not just filling current jobs but making sure the knowledge and experience of workers is passed on before they retire.”
Owens added: “The reality is that many subcontractors and suppliers continue to operate on very tight margins, workloads may appear healthy in certain sectors, but cash flow pressures, fixed-price contracts, delayed project starts, and rising operating costs create substantial financial risk.”
He also argued for procurement reform that values quality, competence and sustainability, rather than driving contractors to unsustainable low-margin bidding. “We recognise that we cannot control market conditions, but we can control how we respond – we’re doing that by investing in our future workforce and their development, investing in our equipment and maintaining discipline in how we choose projects.”
Kieran Sexton, commercial director at AS and Briar Homes
Kieran Sexton, commercial director at AS and Briar Homes, said that build costs have risen by around 35% in recent years, alongside fuel prices, planning delays and additional regulatory requirements.
“In the current market, projects can take much longer to reach site than originally anticipated due to planning delays, yet costs continue to rise while agreed contract values often remain fixed,” he stated. “That creates real pressure on viability, particularly when there is limited scope to increase house prices without impacting affordability.
“But by paying suppliers on time, investing in long-term partnerships and retaining an experienced in-house team, it’s possible to create a resilient business that can navigate these challenges.”
