Construction suppliers face “domino effect” of insolvency risk

The UK construction sector finds itself at the centre of a growing insolvency crisis, with the most recent data from the Insolvency Service pointing to an unsettling trend.

As of March 2023, nearly 17 per cent of all insolvent firms in the UK were construction businesses, translating to around 4,165 companies closing their doors over the past year.

This spike in insolvencies threatens to trigger a ‘domino effect’ in supply chains, as many firms succumb to bankruptcy while owing substantial amounts to their suppliers.

One notable instance is Tolent, which fell into insolvency due to the losses sustained on the Milburngate development, leaving a staggering
£43 million in unpaid debts to its supply chain.

Blanca Berruguete, Allianz’s Global Industry Solutions Director for Construction, recently shared her insights on the industry’s pressing issues with Supply Management.

She pinpointed rising costs of equipment and materials, increased procurement expenses, and extended lead times as factors aggravating the sector’s existing troubles, including thin profit margins and intense competition.

These challenges are creating a “perfect storm” for the industry, juxtaposing rising demand and expectations against decreased capacity and fragile supply chains.

Berruguete strongly recommends a comprehensive review and overhaul of risk management procedures, highlighting the pivotal role of procurement in maintaining cost efficiency, meeting project deadlines, and safeguarding profits and brand reputation.

By revising procurement strategies, companies can foster sustainability while navigating this precarious landscape.

Clients involved in the construction industry must brace themselves for potential insolvencies in their network of customers and suppliers. To build resilience against these unforeseen disruptions, do not hesitate to reach out to our team for guidance and support.

Posted in Insolvency, Newswire.