By Marcus Leach
The number of businesses going bankrupt in the construction sector has jumped by 19% in the last quarter to 948, up from 796 in the previous quarter, says Wilkins Kennedy.
It is the first quarterly rise in insolvencies in two years and has stoked fears of another prolonged downturn for the sector.
Wilkins Kennedy explains that the cancellation of public sector building programmes, such as Building Schools for the Future, has driven this rise in the number of construction firms going bust.
“The Government has slashed capital spending on infrastructure across the board in order to plug the deficit and that has pushed the construction sector into a double dip," Anthony Cork, Director at Wilkins Kennedy, said.
“Fiscal stimulus at the start of the recession had included substantial infrastructure projects that keep the construction sector’s head above water. But that support is now being withdrawn.
“The question now is how quickly private sector construction work will be able to pick up the slack left by the public sector. So far this has not happened.”
Experts estimate that public sector spending on construction projects represent about 40% of the industry's turnover. The Government is committed to halving this, with more than £90bn of capital spending cut between now and 2014.
Research from Barbour ABI reveals that the value of contacts awarded for construction projects fell to just £21bn in the year to May 2011, down from £34.6bn on the previous year.
Drought in public sector contracts will have widespread impact — could affect SMEs
According to Wilkins Kennedy the effects of the downturn in Government contracts is likely to be widespread as companies scramble to fill the void left by the reduced public sector spending.
“Large companies who typically win the most valuable public sector contracts will be forced to look at alternative projects. This is unlikely to fill the void completely and may force many large firms into price cutting, which will drive down the rates of smaller construction firms,” Cork continued.
“Many companies could be forced to pass their pain down through their supply chain, which will have a big impact on sub-contractors, electricians, plumbers and builders’ merchants as well as the rest of the ecosystem that makes up the construction industry.”