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: 24/07/2024
Construction firms accounted for 17.7% of all insolvencies in England and Wales in May 2024, according to the Insolvency Service, with 354 registered construction businesses becoming insolvent.
In the year to May 2024, the total number of construction firms becoming insolvent was 4,287. This was a 1.9% increase on the 4,208 insolvencies recorded in the year to May 2023, and a 33.2% increase on the 3,218 in 2019.
Of all cases where the industry was captured in the statistics, construction experienced the highest number of insolvencies in the year to May 2024.
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 July 2023 and 30 June 2024 was 55.8 per 10,000 companies.
Source: The Insolvency Service
In Scotland, there were 21 construction company insolvencies in June 2024, accounting for 19.3% of all insolvencies in the country. This was four more than in May 2024, and five more than in June 2023.
The total for the 12-month period up to June 2024 was 199, which was a 7.0% decrease on the 214 insolvencies in the year to June 2023, and a 3.9% decrease on the 207 in 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.
In its 2Q2024 report, reflecting on the first half of 2024, it revealed 48% of companies in the Household Goods and Home Construction FTSE sector had issued a profit warning in the last 12 months, with nine in H1 2024.
Its analysts stated, though, that the balance of warnings has shifted from housebuilders towards household goods manufacturers and suppliers.
The report says while the impact of higher interest rates on mortgage payments is ‘still passing through’ and interest rate cuts have been delayed longer than predicted at the start of 2024, ‘most housebuilders have been able to adjust their business models and have been helped by easing cost pressures’.
Further, ‘Those that are still warning are mostly wrestling with delivery issues on legacy projects. But a slower pace of transactions in the housing market as a whole — and pressure on discretionary incomes — is clearly being felt strongly across the household goods sector.’
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 also showed that 349, or 24%, of self-employed or trader bankruptcies in the year to April 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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