Construction has long been one of the UK economy’s bedrock sectors. It holds a 7% share of GDP. Its output is estimated at £122bn per year. It employs some 2.15m people or around 7% of the workforce. It is estimated to have created over 75% of the nation’s capital assets, an astonishing value of some £3.6tn.
Like all sectors, construction has challenges in its business model. Construction companies tend to be volume-driven and highly competitive, which can lead to pricing issues and small profit margins, particularly for smaller businesses. These financial constrains can also be transferred down its supply chain, particularly to subcontractors, which can result in an increase in contract disputes. Resourcing and training has also become a continuous issue through the industry as Brexit has had a significant effect on labour, resulting in shortages and gaps across trades. The construction sector has also been one of the hardest hit by rising material cost and supply, which has further constricted profits and slowed projects.
Financial stability is a rare commodity for the construction industry. For many years, and in both good and bad economic times, around 20% of all UK insolvencies have been construction companies, in stark contrast to its far lower share of GDP. In the first ten months of 2022, there were 3,434 construction company insolvencies in England & Wales, 19% of the total for the period.
Research by the financial health monitoring specialists, Company Watch, reveals that over a third (82,110) of the companies reviewed were in the Company Watch warning area with a health rating (H-Score®) of 25 or less out of a maximum of a hundred. Statistics for the past twenty five years confirm that at least one in four of these businesses will fail or need a major financial restructuring during the next three years. Added to this, we also have found that 10 percent (or 24,167 companies) have negative balance sheets where liabilities exceed assets by at least a de minimis figure of £10,000, and 13 percent (30,667) of the companies reviewed had negative working capital.
Despite these sobering statistics, the construction sector has always been one to bounce back and, with the right guidance, construction businesses who find themselves in difficulties would be well served by working with a business turnaround specialist.
Business challenges faced by the Construction sector
- Continuing excess competition restricting profit margins
- Labour and skill shortages caused by the Brexit and Covid-driven exodus from the UK, which has raised labour rates and increased training needs
- Adverse workforce demographics caused by the high percentage of experienced older workers who will retire in the near term
- Material supply issues caused by Brexit, the pandemic and global shipping disruption, delaying contract completion and raising costs
- Development and use of new, more advanced materials, creating increased training requirements
- The introduction of modern methods of construction (MMC) requiring more on-site mechanical handling, fewer traditional on-site trades and significant off-site factory skills, again requiring more training and staff development
- The greater use of information and communication technology (ICT) to drive more sophisticated integrated information systems. In 2018, construction was the second least digitalised sector worldwide
- Increased focus on environmental and sustainability issues, which raises costs and increases contract complexity
- Health & safety standards – construction had the highest number of H&S-related accidents in 2019
- The requirement for better contract dispute resolution
- IR 35 compliance, requiring the ‘end hirer’ to decide if contractors are inside or outside the complex regulations and to account for the tax and national insurance liabilities of those deemed ‘inside’
- Understanding and implementing the domestic reverse VAT charge introduced from March 2021, which will create additional administrative burdens and software requirements
Helping businesses in the Construction sector
Partners and employees across the Group at Opus have extensive experience and knowledge of the construction sector.
Ways in which we support construction companies, business owners and their management:
- Carrying out comprehensive business reviews to assess and advise on a broad range of financial and commercial issues
- Assisting with financial forecasting
- Reviewing financial and operational systems
- Advising and supporting in negotiations with key stakeholders, such as lenders, suppliers and credit insurers
- Raising new funding, either as equity or borrowing facilities
- Providing strategic advice on changes to the business model or on managing growth
- Seeking out acquisition and merger opportunities
- Advising on exit routes such as the sale of the all or part of the business
- Undertaking forensic investigations where circumstances dictate
- Planning and assisting with restructuring projects
- Offering independent advice on solvency issues
If you would like to hear more about how we can help your business to best manage any current challenges, please contact us at or call us at our nearest office to you.
Market Sector Report
UK Construction Market – serious challenges are being faced
How is the UK construction market responding to the current economic pressures and what is the way forward in 2023?Read the Report