Breaks in construction supply chains caused by the insolvency of a contractor can have disproportionate impacts, writes Michael Cracknell
Insolvency numbers have fallen from their peak of 4,592 in 2023, but they are still 22% above their pre-pandemic levels. The government’s Insolvency Service reported there were 4,411 construction insolvencies in Britain in the year to March 2026, down 5.0% on the same period a year earlier.
Figure 1 shows Insolvency Service data from 2015, the dip around 2020 a Covid impact of closed courts, rather than a temporary improvement.
Construction has the worst record of any sector when it comes to insolvencies, accounting for around 15-20% of failures in Britain. This is partly a reflection of the volatility that the industry has faced in recent years, but this is not a temporary blip. The industry has persistent high insolvency levels that indicate that more structural issues need to be considered.
The Turner & Townsend UK Market Insight report published in May recognised that the beginning of 2026 showed signs of an improving UK economy, which bode well for construction, potential interest rate cuts helping the viability of many schemes.
Turmoil in the Middle East though has, at least for now, put the likes of interest rate cuts on hold. Whilst the impact on energy prices doesn’t seem to be as marked as that seen at the outset of the Ukraine war, when for a period many contractors were unable to offer fixity to tender prices, in an industry where margins are tight even smaller shocks make for difficulties.
“Main contractor or large subcontractor failures are fortunately less common, but when they occur the contagion can be significant”
Whether due to energy costs, carbon mechanisms or regulatory controls, there is currently increasing pressure on material costs again. Reduced sales, though, are making it harder to increase market prices at the moment, so the cost effects are currently suppressed.
The Mineral Products Association highlighted that ready-mixed concrete sales are down 25% and mortar sales down 23% in the period 2022 to 2025 – this may not continue. In the short-term parts of the industry are absorbing costs, increasing insolvency pressures, in the longer term we are likely to see more price increases.
We know that our industry is very fragmented. A typical construction scheme might include 20 to 30 subcontractors sitting under a main contractor whose role on lump sum contracts is to offer the client a fixed price, often over several years. As consultants, we typically see just the top of the structure, many of the major subcontractors on projects can have numerous subcontractors and suppliers of their own. These complex supply chains make the industry fragile; delayed payments by employers or main contractors flow down chains and price increases flow up.
Breaks in supply chains caused by the insolvency of a contractor can have disproportionate impacts. Typically, the higher up the chain the failure the greater the impact. Main contractor or large subcontractor failures are fortunately less common, but when they occur the contagion can be significant. Less reported are the failures of many smaller organisations, these go under the radar but still mark a failure in the structure of UK construction.
How can the industry respond?
Clients, funders, employers quite reasonably want or often need a lump sum or fixed price for a project, but are they getting value for money, particularly if they are still occasionally subject to the disproportionate impact of a contractor insolvency.
Main contractors and key subcontractors seek to protect themselves from impacts further down the supply chain. This can be through adding specific financial provisions to subcontract tenders or through insurance products, while understandable the idea of adding contingency or risk provision at various points throughout an extended supply chain is is not very efficient and ultimately adds cost to a project, which may or may not be necessary.
New project insurance products that seek to cover the whole supply chain are emerging but require a lot of “re-engineering” of existing practices and adoption is likely to be difficult in an industry that doesn’t deal well with innovation.
Increasingly, contractor’s strategic focus prioritises protecting profitability over growing revenue. Unattractive projects or industry sectors will increasingly struggle to attract contractors and hence suffer continued viability issues. This may be an increasing issue as the economy and workloads improve. The importance as a client or main contractor to ensure your projects are “attractive” continues to be paramount, including the likes of: fair contractual and payment terms; complete and co-ordinated design; and sensible allocation of risk.
The industry, though, is responding. We are seeing both vertical and horizontal integration at subcontractor levels reducing the fragmentation to some degree. Some clients are able to understand construction risk and through using construction management approaches are successfully holding and managing some of the risks.
Figure 2 shows construction insolvencies by firm type. The level of civil engineering insolvencies being much lower than more typical construction. Can or should the industry learn lessons from others?
Sadly, many of the issues discussed are well rehearsed, persistently high insolvency numbers that only increase in periods of volatility and turbulence. They are a “tell-tale” to a fragmented industry that needs to address structural issues to improve the outlook.
Michael Cracknell is a director at Turner & Townsend.
