Quarter of construction businesses face 'significant' failure risk

New research has shown that a quarter of construction sector businesses in the North East face a ‘significant’ risk of failure.

Figures from insolvency trade body R3 have highlighted the enduring problems the region’s firms are facing.

The research found that 24% of businesses are around four times more likely to fail than their peers in the research’s ‘normal’ band.

The report, which is based on figures from Bureau van Dijk’s Fame database, also shows that a further 5%, 296 businesses, face a ‘high’ risk of failure and may have difficulties in continuing to trade unless significant remedial action is taken.

The north east figures are roughly are in line with the national average for both categories, and better than the equivalent figures for other parts of the UK, including the north west, London and the south east.

R3’s research, which looked at businesses defined as being involved in the construction of buildings, civil engineering or specialised construction activities, comes in the wake of the most recent Markit/CIPS purchasing managers’ index report, which showed that, in April, the sector experienced its slowest rate of contraction in six months of falling activity.

The Markit/CIPS report also revealed a slight decrease in overall new construction orders, while employment in the sector remained stable.

Steve Ross, chair of R3 in the north east and a partner in the Restructuring department of the Sunderland office of accountancy firm RSM Tenon, said: “It’s no secret that the construction industry has been one of the hardest hit sectors since the economic downturn took hold five years ago, and despite occasional glimpses of optimism over the last couple of years, it’s still very clearly suffering.

“Many long-established north east construction firms have simply disappeared as a result of the recession, while others have had to substantially cut back on capacity in order to stay afloat, and this has clearly also had a knock-on effect on a wide range of supporting industries, from architecture and building design through to builders’ merchants and employment agencies.

“Despite the sector’s obvious problems, there are obviously still hundreds of construction firms across the north east that are trading well in the face of adversity, winning new contracts that sustain existing jobs and create new ones, and their achievements in the most difficult of economic circumstances warrant proper recognition.

“As with any business that might be facing financial difficulties, the best way for construction industry managers to address them is to get advice from a qualified source as soon as problems become apparent, rather than just waiting and hoping that they’ll go away.

“Taking this sort of proactive action is the most likely route towards addressing and resolving their companies’ problems, and getting them back into the right shape to start growing again.”

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