Recovery stays out of reach as administrations tick up

The volume of construction administrations has increased for the second consecutive month, Creditsafe data shows.

A total of 31 businesses went into administration in June, compared with 24 in May and just 13 in April.

Despite the uptick, the figure of 68 failures for the second quarter (Q2) of 2024 is the lowest quarterly number since Q3 2022, when 64 firms went under.

And the 147 construction firms to enter administration in the first half of this year marks a 16 per cent year-on-year decrease.

However, the total for June was the highest monthly toll since last November (33).

The majority (21) of the firms to fail last month employed five or fewer staff below director level, and nine employed none at all.

Four companies were less than three years old and one – Montreaux Binfield Limited – has never filed accounts.

At the other end of the spectrum, three firms were big enough to file turnover and profit figures with Companies House.

The largest by turnover was West Midlands-based residential contractor and developer Piper Homes (pictured), which called in administrators from FRP Advisory on 6 June.

In 2022, it was named as the top independent UK housebuilder in the Financial Times 1000 Europe list of fast-growing businesses.

But the firm’s most recent annual accounts showed revenue of £20.1m in the 2022 calendar year, almost half the previous year’s £38m.

Piper Homes also posted a £653,908 loss compared with a £1m pre-tax profit in 2021.

In the accounts, directors blamed the poor performance on a “chronic undersupply of new-build housing in the UK” and delays in achieving planning consent on new site starts in the Midlands.

Piper Homes employed 42 staff in 2022 compared with 30 the year before, and directors expected the firm’s fortunes to improve in 2023, with 993 contracted plots in the pipeline.

Subsidiary company Piper Living Ltd remains in business.

Cambridge-based Bowie Construction called in administrators from Quantuma Advisory on 3 June, two months after the groundworks specialist filed a notice of intent.

Bowie posted a pre-tax loss of £1m from a turnover of £14.5m in its latest annual accounts for the 2022 calendar year.

Director Andrew James Bowie said in the 2022 accounts, published in December 2023, that margins had been hit by fixed-price contracts agreed before the Covid pandemic.

Construction News reported in April that the firm had been working as a subcontractor for Morgan Sindall-owned Lovell Homes on housing jobs in King’s Lynn, for client West Norfolk Borough Council.

Administrators from RSM Restructuring Advisory were appointed on 4 June to oversee the affairs of Osborne Slinfold, a sister company of Geoffrey Osborne Ltd, which collapsed in April.

Osborne Slinfold had not filed annual accounts since July 2022. Last April, it extended its accounting period from 30 September 2022 to 31 March 2023, according to the Companies House website.

In its most recent accounts, for the year ending 30 September 2021, the firm posted a turnover of £11.6m and a pre-tax loss of £592,000. It employed a monthly average of 60 staff in the year.

Elusive recovery

Looking beyond administrations, the latest data from the Insolvency Service showed that 4,401 construction companies in England and Wales registered as insolvent in the year to 30 April 2024 – 18 per cent of all businesses to do so.

“The reality is that a number of main contractors are still recovering from their Covid hangovers,” said Peter Vinden, a director at restructuring company Leonard Curtis.

“Material supplies are now flowing but the higher prices charged by suppliers and subcontractors during and after Covid are never going back down,” he told CN.

Accessing finance is an issue for SMEs and larger contractors, Vinden said, but a solution may be at hand.

“The asset-based lending market is maturing in the UK. It is in this area of the funding market where contractors and subcontractors should concentrate if they are seeking out new lines of funding.

“Yes, the main clearing banks will always lend to a contractor that has a strong unencumbered fixed-asset register [a detailed list of fixed assets owned by a business].

“These same banks are, however, simply not keen to rely only on contract receivables as security for those businesses that are not as fortunate.”

The Building Cost Information Service has predicted that construction costs and tender prices will increase by 15 per cent and 19 per cent respectively over the next five years.

Vinden said that many contractors remain caught between a rock and a hard place, especially if they are locked into long-term fixed-price contracts.

“These issues are slowly working their way out through the market, but it takes time to do so,” he added.

However, tier one contractor Mace described “slightly more favourable” conditions for construction in its latest market report, released on 2 July.

“In annual terms, material costs are 2.3 per cent down and total construction new orders are higher than at the end of 2023” as labour cost pressures ease, it added.

“At the same time though, it was another challenging quarter for construction output with the industry shrinking 0.9 per cent and pipelines remain weak.”

Emyr Jones, senior underwriter and construction specialist at credit insurer Atradius, told CN that he doesn’t see the high rate of construction insolvencies changing in the short term.

“There is some light at the end of the tunnel, with the early signs of buying gains as inflation belatedly eases, and as non-residential contractors work through the last of their legacy issues,” he added.

But smaller housebuilders and subcontractors in particular will still experience subdued demand “until such time as we see movement on interest rates”, Jones said.

He described “more prevalent” payment delays, adding “there is an ongoing reluctance to trade on credit terms, if adequate credit insurance cover cannot be secured”.

This outlook was echoed by Vinden.

“I do anticipate more insolvencies in the construction sector this year and that we are in for a hard winter ahead,” he said.