Written by: Keith Tully
Reviewed: Wednesday 7th February, 2018
The collapse of the facilities management and construction services giant Carillion in recent weeks could add considerably to the rising number of insolvencies within the UK’s construction sector.
That’s according to the accountancy firm Moore Stephens, which has noted with concern that construction sector insolvencies were already rising last year even before Carillion fell into administration with debts reportedly worth around £1.5 billion.
Carillion had more than 20,000 employees in the UK and group-wide revenues worth in excess of £5 billion as recently as 2016 but the organisation is now in the process of being liquidated.
Financial pressures are being felt across the construction sector as a whole, with official Insolvency Service numbers showing that 2,633 businesses in the industry became insolvent in the year 2016/17.
That number of insolvencies among construction sector firms represented an 8 per cent increase on the same figure for the year before.
Concerns are growing that the collapse of Carillion will soon see many of its subcontractors around the country left unpaid and struggling to manage their own finances effectively enough to avoid insolvency.
Carillion is understood to have held as little as £29 million in cash upon its entry into liquidation in recent weeks, which came as alarming news to its subcontractors, many of whom are still owed significant sums of money by the business.
“The fall of Carillion could be the trigger for even more construction companies going under,” said Lee Causer, a restructuring and insolvency partner with Moore Stephens.
“Carillion has already left a huge number of subcontractors out of pocket, when they are already facing enormous financial pressures.”
Moore Stephens cites figures from the business finance website Funding Options in suggesting that construction companies throughout the country are having to wait an average of 69 days to see their invoices paid by clients.
The average number of days construction firms wait on average for their bills to be paid has reportedly risen from 52 days just five years ago.
“Profit margins in construction are already very tight, and late payment of subcontractors is now standard procedure for far too many in the sector,” commented Mr Causer from Moore Stephens.