Insolvency risk may rival inflation as main threat to UK construction, warns Turner & Townsend

Turner & Townsend said the potential return of rising insolvencies in the construction industry shows that economic reality is catching up with the sector, following the closure of the furlough scheme in September 2021, and the end of the temporary easing of insolvency rules in March 2022.

Turner & Townsend’s latest UK Market Intelligence Report (UKMI) is alerting the company’s clients to the increased number of construction sector insolvencies which have risen by 72.1 per cent year-on-year to the second quarter of 2022.

Turner & Townsend is advising clients to take a pragmatic approach to project and programme delivery to help tackle both inflationary and insolvency threats.

Michael Grace, Director and North East and Yorkshire Strategic Lead at Turner & Townsend said: “Insolvency risk is becoming a growing issue in our region across all supply chains as the long-term impact of the pandemic is realised, and the fiscal crutches offered by Government are removed.

“It’s essential to spot the tell-tale signs of insolvency risk early, these include low productivity, difficulty securing labour or materials, and failure to pay suppliers. To be prepared, build trust and open communication within your supply chain.”

Turner & Townsend has also revised its tender price inflation forecasts in the UKMI.

The report’s estimate for 2022 in real estate has been adjusted slightly to 8.7 per cent, an uplift from 8.5 percent in Spring’s UKMI.

Sustained higher inflation is expected to persist, with 4.5 percent forecast for real estate tender prices in 2026.

Mr Grace added: “Our sector is at the heart of driving forward positive change, with projects such as the Towns Fund in Calderdale, the Cultural Heart in Kirklees and the City of York’s housing programme helping us level up the UK, bring forward social value, and achieve the transition to net zero.

“For this potential to be met, risk in project delivery must be minimised.”

He added: “This will take programmatic decision-making that plans for the full lifecycle of projects – looking beyond low-cost bids and instead assessing the sustainability and robustness in the financial credentials of firms and their ability to deliver.”

Leeds-headquartered Turner & Townsend is a global professional services company specialising in providing programme management, project management, cost and commercial management and advisory across the real estate, infrastructure and natural resources sectors. It has 118 offices in 50 countries.