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Number of construction firms in financial distress up by 31%

More than 23,000 construction firms said they have experienced “significant” financial distress over the last 12 months, according to new data from business recovery specialist Begbies Traynor.

The firm’s Q2 2015 Red Flag Alert, which monitors the financial health of UK companies, said the number had leapt by 31 per cent year on year.

Eleven per cent more firms reported financial distress in the 12 months to the end of June than the 12 months to the end of March.

Smaller businesses make up the vast majority of the struggling firms, with 95 per cent of those reporting financial distress classed as SMEs.

The data also showed that 1,114 building materials and equipment suppliers experienced “significant” financial distress over the 12-month period, with two major companies – Speedy Hire and HSS – posting shock profit warnings over the period.

Begbies Traynor partner and property expert Julie Palmer said: “For some time now the UK construction industry has been plagued by supply chain issues, skilled labour shortages and spiralling building materials inflation, which together have seriously subdued construction activity since the start of the year.

“As a result, many builders have been forced to seek out alternative sources of labour and materials from overseas, impacting the price, quality and control of development activity while increasing competition within the domestic supply chain.”

So far this year a number of major firms have fallen into administration, including PC Harrington Contractors, GB Building Solutions and Longcross Group.

More recently, Kent-based specialist Fairhurst Ward Abbotts went into administration in July, putting more than 300 jobs at risk.

Commenting on the market, EC Harris head of research Simon Rawlinson said he was surprised there had not been more firms going under as a consequence of winning work on contracts at dangerously low margins.

“One element in administrations is that people had bid low and then incur losses that at some point stop the company being a going concern,” he said.

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