August dealt another huge blow for the construction industry, with sector leaders Buckingham Group suffering major cashflow issues. The business appeared to be on the brink of collapse, as they completely ceased trading earlier this month. This follows Allma Construction and Henry Construction, both large organisations and cornerstones of the sector that were previously seen as infallible, into administration as the sector continues to rock.
Buckingham Group is the latest to cease trading in the present climate and is unlikely to be the last. In a statement released on the company’s website, the Group blamed "rapidly escalating contract losses and a sharp reduction in liquidity”. They also said that "the business has been outweighed by deep losses and interim cash deficits” causing a sharp downturn in profitability. The Group’s current statement does claim they are yet to file officially for administration, holding out a lifeline for employees and their ongoing projects.
Despite having a turnover of £655 million in 2021, which is 99.6% higher than other companies in the construction industry, it wasn’t enough to keep Buckingham Group afloat in a brutal market. Their work on key infrastructure projects such as HS2 and Liverpool FC’s stadium didn’t offset the steeply rising costs of materials and labour, and the Group became the largest UK construction giant to fall since Carillion in 2018.
This tumultuous market proves that having in-built protections through data technology is becoming an essential safety net for those operating within multiple sectors, but particularly in construction, where over 4,000 businesses have gone insolvent this year alone.
Using Red Flag Alert’s proprietary data, our users were alerted to the risks through our monitoring software, and it flagged that Buckingham Group was at high risk of entering financial difficulty. Specifically, our insolvency health score identified the Group as a threat for bad debt, way back in October, as seen in the below screenshot. We based this on several factors, including the company’s financial history and current performance, and a sharp reduction in liquidity.
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Through our insolvency scoring metrics and algorithm, the issues at Buckingham Group were flagged to all Red Flag Alert customers, so our users were aware the business was identified as high-risk months before anyone else. Anyone monitoring the organisation was sent an alert regarding the change in financial status and the ongoing uncertainty about the stability of their future. This allowed companies to protect themselves and be aware of exactly who they are doing business with, so they could make informed decisions and take the steps to avoid unnecessary risk.
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“It’s been a tough year for everyone in the construction sector,” said Richard West, Managing Director of Red Flag Alert. “We’ve seen a steep rise in the cost of operations and a noticeable impact of bad debt when other companies fail. These economic parallels have caused the perfect storm of insolvencies for those operating within the construction sector. And that’s not good for British industry overall.”
“Here at Red Flag Alert, we try to lessen the impact of bad debt by giving our users vital information at their fingertips and allowing them to set up an unlimited number of companies within our monitoring feature. That way, if anything changes, they’ll be the first to know and can take appropriate action as soon as possible.”
“But let’s be clear – things are getting rocky out there, and businesses need to do everything they can to protect themselves from the impact. They need to monitor customers, suppliers, and partners with software like Red Flag Alert, and they must be aware of the financial history within businesses so they can safeguard their own operations.”
Nearly 5,000 construction businesses have gone insolvent in 2023, a figure 16.5% higher than in 2022. The collapse of the employee-owned Buckingham Group, with 660 jobs at risk, is the latest in the long line of businesses within the sector, struck down by a multitude of global and economic factors.
Although many of the affected businesses are small, specialised contractors, some large and established businesses have also fallen into administration, causing thousands of staff to lose their jobs and huge projects to grind to a halt.
Red Flag Alert’s Chief Economist, Dr Nicola Headlam, warned that issues within the construction sector would have a widespread impact that could cause shockwaves in other areas of the economy. She said, “This is not good news for the industry and the UK as a whole. This will lead to a much smaller pool of construction companies available for contracts and for suppliers to do business with.”
“The post-recession economic bounce back will be hampered by a lack of building companies available for projects in the next growth stage, and a supply chain that will be unable to respond to growth signals. This will choke off growth in the next economic cycle.”
“One potential upside of this situation is that a lack of companies competing for lucrative building projects could open up greater opportunities for solvent firms, as well as for acquirers within the construction sector. This includes buyers targeting distressed acquisitions, which are likely to be rife should current pressures continue to impact the industry.”
“By supporting construction and funding house building, the government can turn the vicious cycle of insolvency in the industry into a virtuous circle where money flows through the supply chain as opposed to bad debt."
Construction companies find a wide range of uses for our real-time and comprehensive data, to find information on any business operating within the UK.
This knowledge is vital when working in the construction industry, to avoid potential delays to projects, or cashflow issues. Our cloud-based business intelligence software provides construction companies with the tools they need to take a deep dive into the companies they work with.
Accessing our real-time data allows for faster and more informed decisions, saving time and money. By using us to undertake risk management, projects get done on time and within budget, reducing the chance of costly disruptions and increasing overall profit.
Here are the top solutions that we offer those within the construction sector:
Construction projects are complex, involving multiple stakeholders, schedules, and workflows. Integrate technologies that will increase efficiency and compliance, whilst reducing risk.
Financial risks, such as unpredicted Insolvencies, supplier risk, and compliance issues, are a top concern within the construction industry. Reduce these risks through better oversight and controls; improve monitoring and KYB of customers or suppliers and ensure regulatory compliance.
We know profit margins in construction can be tight, therefore reducing the risk of bad debt and streamlining the onboarding of customers and supply chain, are highly valuable in optimising cash flow.
Many construction firms are transitioning from traditional methods to digital solutions by using technology to automate processes, improve accuracy, gather supplier and data analytics, monitor distress and reduce administrative costs.
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In this article we explore the UK construction sector’s outlook, key causes of insolvencies, and ongoing challenges facing the industry.
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