Insolvencies – What can make the construction curse go away?

Construction insolvencies Ellis Fox Blog

A few years back the demise of Carillion rocked the construction industry and the knock on effects were felt for years. It was a time of reflection where many called for reform and the abandonment of business practices that made it harder to remain profitable. Late payments, retentions and low cost bidding were highlighted as a few of the challenges. What has changed and is the construction industry any better off today?

The past two years have seen the industry rebound with positive growth in new project starts and output. Significant investment was earmarked for development and improvement of infrastructure and utilities. Several Main Contractors streamlined their operations, implemented new policies and underwent digital transformation to improve output.  Technology is being increasingly adopted and innovation funded by both government and the private sector.

Despite these positives, the curse of poor cash flow remains. There have still been a growing number of contractors falling into administration and judgements being issued for bad debt. It’s not just the job losses and unfinished projects impacting the broader industry. The knock on effects of bad debt are becoming harder to absorb. It’s a stark reminder that ignoring cash flow and turning a blind eye to bad business habits, no matter how entrenched, will eventually catch up to you.

Now with a looming recession, it’s going to be even harder to remain profitable. Inflationary pressures, budget cuts and skills shortages will add to the financial pressures that Main Contractors are already feeling.  What are the considerations and critical changes that can help prevent more insolvencies in the construction industry?

  • Bidding and contracts

With increasing material costs and other inflationary pressures, the habit of low cost bidding will set projects up for failure. Equally, not reforming contracts to include better payment terms can leave companies vulnerable.

  • Project management

Project management technology has developed significantly, including AR and VR scanning that can identify any deviations from plans. Greater visibility into project progress and budget status is a key element to ensuring projects stay on track. Broader adoption of these technologies can only serve to benefit the industry.

  • Financial  & HR management

There’s no replacement for sound financial management. It remains the pivot point for sustainable profitable operations and should be embedded into the broader company culture. Equally, having the right people in senior positions  ensures the  best decisions are being made for the company.