Sharp rise in construction insolvencies following Carillion’s collapse
It has been reported that 2,764 construction firms entered insolvency in 2017/18, jumping 6% in just a year from 2,608 in 2016/17
This substantial rise in construction insolvencies can be seen as being partly due to the fall-out following Carillion’s liquidation in January 2018. Many of the reported insolvent firms were part of the supply chain serving what was the UK’s second biggest construction company.
Following Carillion’s collapse, 780 construction companies fell into insolvency in the first quarter of 2018, up 20% from 652 in the fourth quarter of 2017.
– Carillion’s vast size and involvement in a range of substantial projects across the UK and further afield, including hospitals, military bases, and road and rail projects meant that it’s demise impacted thousands of others in the construction industry.
The construction industry is plagued by late payment problems, increasing bad debts and notoriously narrow margins. Carillion’s payment terms allowed 120 days to pay suppliers, with an ‘early payment facility’ that allowed suppliers faster payments if they would accept less than the full amount owed.
Following Carillion’s liquidation, thousands of its subcontractors who were already having to deal with low profit margins and difficult cashflow, lost significant amounts of work. This together with the growing bad debts left by Carillion meant for many insolvency was the only option.