No sunshine in August as administrations hit another monthly record

An all-time monthly high of 44 firms went under in August, with more indications of a slowdown on the horizon

Administrations in the construction sector reached a new monthly record in August, with 44 companies going under – more than double the 20 recorded in the same month last year.

Creditsafe data also shows that 247 firms entered administration in the year to date, marking a 56 per cent year-on-year increase.

But the highest-profile casualty this year – Buckingham Group – is not on this month’s list of collapsed companies. The £665m-turnover firm ceased trading on 16 August, but Rob Parker, Jon Roden and Kevin Coates of Grant Thornton were appointed as joint administrators on 4 September, the same day that Kier bought most of Buckingham’s rail assets and HS2 activities for £9.6m, saving 180 jobs. However, the company’s other activities could not be saved.

Even without Buckingham, construction administrations in August included eight firms large enough to file turnover figures with Companies House.

One example was London-based specialist Haydon Mechanical & Electrical, which worked on the 75-storey Landmark Pinnacle in London’s Docklands and the 52-storey One St George Wharf in Vauxhall. It reported a pre-tax loss of £6.2m from turnover of £66.2m in its most recent accounts, covering the year ending 31 December 2021.

The accounts noted that due to “cashflow issues”, there was a material uncertainty about the company’s ability to continue as a going concern, but it staggered on until August this year.

Another London firm, Henley Homes, called in administrators from James Cowper Kreston and 360 Insolvency, four months after its sister firm Henley Construct went under.

Henley Homes posted turnover of £1.80m and pre-tax profit of £602,600 for the year ending 31 December 2021, down from a turnover of £5.35m and pre-tax profit of £1.98m the previous year.

In the firm’s annual report, company director Tariq Usmani cited difficulties in procuring materials and labour that were “compounded by strong inflationary pressures on project costs”.

JD Cooling Systems provided bespoke temperature-control systems for contractors in the pharmaceutical, food and data-centre industries. Turnover from its construction contracts more than halved from £23.9m to £10.1m in the firm’s most recent financial year, ending 31 May 2022.

In its annual report, company directors stated that the size of some of the firm’s trade debts was a major risk, “given the substantial nature of some of the projects we undertake”. The Norfolk-based company ultimately had to call in administrators from McTear Williams & Wood.

August also saw road-maintenance contractor R&W Civil Engineering fall into administration. The Southampton-based firm posted turnover of £31.8m and pre-tax profit of £876,600 in its latest set of accounts, for the year ending 31 March 2022.

Company director Andrew Theobald noted in his strategic report that “uncontrollable resource inflation” had affected the firm’s profit margin.

In July, the firm filed a notice of intention to appoint an administrator. It later announced that talks were at a “very advanced stage” with a potential buyer, but these must have fallen through as administrators from James Cowper Kreston were called in on 9 August.

A ‘lethal cocktail’

Andy Taylor, partner and head of restructuring at law firm Shakespeare Martineau, described a “steady flow of corporate failures” in the construction sector. This was borne out by figures released in August by the Insolvency Service, which showed that around 4,280 construction-related businesses became insolvent in the year to 30 June 2023 (an increase of 16.5 per cent compared with the previous 12-month period).

Tight cashflow puts businesses at higher risk of failure, Taylor noted, adding: “Supply chain issues and the rising cost of importing goods… have created a challenging juggling act for businesses to maintain profitability.”

Tim Symes, insolvency partner at law firm Stewarts, said the skills shortage, inflation and high interest rates added to “a lethal cocktail of pressures that many construction companies and contractors simply won’t withstand”.

The trend towards higher administration numbers – with the monthly record broken three times this year already – reflects broader problems in an industry predicated towards fixed-price contracts, said Brendan Sharkey, partner at MHA Macintyre Hudson. “The industry needs to improve its housekeeping with better management and financial stewardship . To prosper, the industry needs to be more stable to attract the talent it needs and weather the inevitable storms when they come,” he told Construction News.

In addition, the latest quarterly market forecast from Arcadis, released on 4 September, described “concrete signs of a construction slowdown that is set to rock the sector, with new orders falling for the third consecutive quarter even as viability and dwindling demand levels hit housebuilding”.

Simon Rawlinson, head of strategic research and insight at Arcadis, said: “Borrowing costs are expected to remain high for the next two years and prospects for the investment economy, including housebuilding and commercial development, are likely to be further downgraded.”

He warned that there were “few safe havens for workload other than net-zero and fire-safety retrofit, which still see strong demand”.