BCIS CapX includes price adjustment formulae, a method of calculating the increase, or decrease, in contractors’ costs over any period. The formulae and indices (over 200 of them) are widely used in various sectors in the construction industry, including civil engineering contracts and facility management.
Published: 21/11/2024
Construction firms accounted for 16.2% of all insolvencies in England and Wales in September 2024, according to the Insolvency Service, with 292 registered construction businesses becoming insolvent.
In the year to September 2024, the total number of construction firms becoming insolvent was 4,264. This was a 0.7% decrease on the 4,293 insolvencies recorded in the year to September 2023, and a 32.5% increase on the 3,218 in pre-pandemic 2019.
Of all cases where the industry was captured in the statistics, construction experienced the highest number of insolvencies in the year to September 2024.
Source: The Insolvency Service
The Insolvency Service said while the insolvency rate has increased since the lows seen in 2020 and 2021, it remains much lower than the peak of 113.1 per 10,000 companies seen during the 2008-09 recession. This is because the number of companies on the effective register has more than doubled over this period. The overall rate between 1 November 2023 and 31 October 2024 was 53.8 per 10,000 companies.
In Scotland, there were 22 construction company insolvencies in October 2024, accounting for 19% of all insolvencies in the country. This was nine more than in September 2024, and nine more than in October 2023.
The total for the 12-month period up to October 2024 was 210, which was a 4.5% decrease on the 220 insolvencies in the year to October 2023, and a 1.4% increase on the 207 in pre-pandemic 2019.
Source: The Insolvency Service
By rough comparison, in 2023 construction firms accounted for 13.8% of all registered businesses in the UK, suggesting the industry is still disproportionately affected by insolvency.
Within the construction industry, firms categorised as providing specialised construction activities are consistently the most affected across Great Britain.
This includes companies providing a range of work, typically on a subcontract basis, from demolition and site preparation to electrical and plumbing installation, and finishing work like plastering, painting and glazing.
The Insolvency Service also publishes figures for Northern Ireland, but not with sector breakdowns.
Analysis by EY-Parthenon on profit warnings issued by listed construction companies has shown particular vulnerabilities in the industry.
It revealed 22% of companies in the FTSE Construction and Materials sector have issued profit warnings in the last 12 months. While cost pressures have eased, analysts pointed to the systemic challenges of low margins, variable costs, and the inherent unpredictability of the construction process still posing a risk to firms.
The third quarter report says: ‘An increasing focus on risk management throughout the contract lifecycle, from pricing to delivery, on internal controls, and on forecasting to limit risk should allow companies to identify and address problems earlier.
‘Nevertheless, contractors remain vulnerable to any slippage in these disciplines, which can, in turn, create a snowball effect as clients and trade and financial creditors lose confidence.’
Analysts also warned sector insolvencies have dampened the appetite for trade credit insurance and bonding and increased cost – while also intensifying scrutiny from stakeholders.
A multitude of factors feed into company insolvency, though analysis of profit warning data by EY suggests the construction industry is particularly exposed to financial difficulty. This is in part due to the nature of contract cycles and the challenges of cash flow management that contractors and subcontractors are subject to.
Further data released by The Insolvency Service showed that 355, or 25%, of self-employed or trader bankruptcies in the year to August 2024 were in construction in England and Wales.
An effective way of mitigating the risks associated with fixed-price contracts when costs are so changeable is to use fluctuation clauses linked to work category and resource-specific inflation indices, such as those available in BCIS CapX.
Our indices, covering more than 200 work activities across building, civil engineering, specialist engineering and highways maintenance, can also be used throughout the budgeting and procurement stages to plan cash flow more effectively.
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