The collapse of Carillion, the ‘Beast from the East’ and ongoing uncertainties over Brexit mean the construction sector has suffered a turbulent first three months of 2018.
We had only reached the third week of the year when Carillion entered liquidation.
With the firm unable to stay afloat as debts ran into the billions, tens of thousands of jobs were suddenly under threat, whether you were directly employed by Carillion or worked for a supplier that depended on its contracts.
The Beast from the East weather conditions in February didn’t help matters.
Projects of all sizes endured unwelcome delays across the country. According to the latest Markit / CIPS Purchasing Managers’ Index, the construction industry suffered its biggest drop in activity since the Brexit vote as a consequence.
Inevitably, given these events, pain was felt across the industry.
Figures from Creditsafe’s Quarterly Watchdog Report show the number of company failures across the industry totalled 934 in Q1, a 73 per cent increase from the 539 recorded in the previous quarter. It was hardly surprising to see that four of the five biggest failures across the industry related to the collapse of Carillion.
Bad debt soars
Suppliers are likely to feel justifiably aggrieved given the start to the year they have endured.
Creditsafe’s figures revealed suppliers’ bad debt (money owed by the construction sector to suppliers that is unlikely to be paid) reached £100.2m in Q1 2018, which was two-thirds higher than the amount filed in the previous quarter (£60.3m). Specialist Engineering Contractors’ Group CEO Rudi Klein has estimated that Carillion left a trail of £1.2bn in unpaid bills to thousands of small subcontractors.
“The break-up of larger companies such as Carillion presents an opportunity for the growing number of SMEs to take a larger share of the market”
The value of total sales – arguably the most important statistic – experienced a disappointing 6.2 per cent decline in Q1, falling from £313.3bn to £293.8bn between quarters.
It would be fair to say, however, that the health of the construction industry was a reasonable reflection of how other core UK industries performed in Q1.
Creditsafe’s data showed that the biggest sectors as a whole had a rough start to 2018, with overall levels of bad debt hitting £580m across 11 different UK industries, while sales dropped by 23 per cent between quarters.
Silver lining appears
If there is to be a silver lining from the rocky start to the year, it would be that the number of new companies in the construction industry increased 18.9 per cent over the first three months of 2018 to 17,041, up from 14,338 in Q4 2017.
The break-up of larger companies such as Carillion presents an opportunity for the growing number of SMEs to take a larger share of the market, improving the industry’s long-term health.
Other large companies within the sector will hopefully learn the lessons Carillion did not, acknowledging that size does not necessarily guarantee stability.
Chris Robertson is UK CEO of Creditsafe