Surge in Construction Firm Collapses Threatens UK Infrastructure Projects

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The UK’s construction industry, long viewed as a barometer of economic health, is facing a mounting insolvency crisis. In the first four months of 2025 alone, 840 construction firms entered insolvency. This marks a 24 percent increase from the previous year and more than twice the number seen before the pandemic.

These failures have widespread implications. When a construction firm collapses, the effect ripples outward. Projects are halted, subcontractors go unpaid, and communities lose vital employment. Recent insolvencies involving major firms such as ISG Ltd and Buckingham Group highlight the severity of the situation.

What makes this downturn unique is that demand for construction remains strong. Government infrastructure initiatives and private developments continue at pace. Yet the industry’s financial foundations have weakened due to rising costs, tax increases and constrained cash flow.

The escalating crisis: a statistical overview of UK construction insolvencies

The most recent insolvency figures reveal a sector under siege. According to data from City A.M., 840 UK construction companies collapsed between January and April 2025. This is the highest recorded figure for a comparable period in more than ten years.

The construction sector now accounts for over 20 percent of all UK business insolvencies. While the broader economy experienced a 9 percent rise in business failures during March 2025, construction firms saw a sharper increase due to price volatility, payment delays and financial fragility.

This trend is not new. Between 2023 and 2024, construction insolvencies rose by 18 percent, with further acceleration this year. Indicators such as trade credit insurance claims and late payment filings suggest that the pressure is continuing to mount.

Structural issues within the industry compound these figures. Most firms operate with thin capital, relying heavily on subcontracting and just-in-time payments. This leaves them highly vulnerable to cost increases and client defaults. Payment delays in particular have become a flashpoint, exposing smaller businesses to serious financial harm when cash flow is disrupted.

The financial pressures facing construction firms

Several factors have driven insolvencies in the construction sector, with rising costs leading the list. Prices for core materials such as steel, concrete and timber have increased sharply over the past two years. These increases, initially attributed to supply chain disruptions, are now considered part of a long-term trend.

Labour costs have followed a similar path. A shortage of skilled workers has pushed wages higher, while recruitment has been hampered by reduced access to overseas labour. Brexit and the pandemic combined to shrink the construction workforce, and efforts to rebuild it have not kept pace with demand.

Financial conditions have also worsened. Higher interest rates have made borrowing more expensive, reducing liquidity for firms that depend on credit lines. Increased National Insurance contributions and changes to Corporation Tax have further squeezed margins.

The result is a fragile financial environment in which small delays or disputes can result in insolvency. Even large firms with multiple contracts are struggling to stay afloat. With many operating on fixed-price contracts, absorbing increased costs has become unsustainable.

Subcontractors and supply chain vulnerabilities increase sector fragility

Subcontractors have been among the hardest hit by the rising wave of insolvencies. These smaller firms often carry out work before receiving full payment and are rarely protected when larger contractors collapse. A single unpaid invoice can jeopardise their survival.

The ripple effect spreads quickly. As more primary contractors fail, subcontractors and suppliers are left exposed to bad debts. This in turn disrupts supply chains, delays project delivery and increases costs for clients.

Public-sector projects are especially vulnerable. Budget constraints and procurement rules make it difficult to replace contractors mid-project. As a result, councils and government agencies face both financial and reputational risks when contractors go under.

Suppliers, meanwhile, have grown increasingly cautious. Many now demand upfront payment or stricter credit terms, adding more pressure to contractors’ cash flow. In an industry reliant on deferred payments, such shifts can destabilise even well-managed firms.

Industry bodies have proposed several solutions, including the wider adoption of project bank accounts to safeguard subcontractor payments. Legal reform to improve payment security is also under consideration, but changes are progressing slowly.

The fall of industry giants highlights structural weaknesses

The collapse of ISG Ltd and Buckingham Group marked a turning point in the industry’s financial crisis. These were not small enterprises. They were major contractors responsible for high-profile public and private projects.

ISG Ltd entered administration despite a strong order book. It had struggled with delayed payments and contract losses, and was unable to weather the storm of rising costs and tightening credit. Credit insurers began pulling cover in the months before its collapse, indicating a widespread loss of confidence.

Buckingham Group faced similar challenges. Specialising in infrastructure and sports venue construction, it reported significant losses due to project delays and unpaid client invoices. Its administration left hundreds of subcontractors in financial limbo.

These high-profile failures have exposed weaknesses in the sector’s financial model. Large firms, while appearing stable, are often undercapitalised and reliant on continuous project flow. When market volatility interrupts that flow, insolvency becomes a very real risk.

The fallout from these collapses is still being felt. Public projects have been delayed, costs have risen and supply chain stability has suffered. These events underscore the urgent need for reform across contract structuring, payment terms and risk allocation.

While the current crisis is significant, it has sparked renewed debate about how the construction industry should evolve. A growing consensus has emerged around the need for reform in financial practices, contract management and policy oversight.

Sources:

• City A.M.
• Business Live