A report from trade credit insurer Atradius has revealed that payment delays and insolvencies are expected to weigh heavily on the construction industry this year.
The Atradius Construction Market Monitor warns of a negative insolvency outlook for 2019, following an already troubled period since 2017. A catalogue of issues has combined to form a perfect storm for the UK construction industry, led by overriding economic uncertainty. The industry is suffering from persistent late payments, lack of supplier support, contract overruns, escalating costs and retention payment issues. In addition, the knock-on effect of the Carillion liquidation will continue to impact suppliers and subcontractors for some time to come.
Atradius reports that average payment terms in UK’s construction sector measure 75 to 90 days, with a high level of protracted payments and payment delays. The pattern is expected to have worsened in the first half of 2019.
Whilst the climate in the sector is not strong, Atradius has continued to underwrite risks and has urged firms in the industry to be forthcoming with financial information to enable robust risk management.
Simon Rockett, Head of UK Underwriting at Atradius, said “With a high prevalence of late payments and insolvencies, it is impossible to deny that the construction sector is on shaky footings for 2019. Over the last 12 months, the speed at which some companies fail appears to have increased. Therefore, it has become even more important to have full, accurate and up-to-date financial information to analyse the risks of trading with an individual company. Buyer transparency is essential to making the most-informed underwriting decisions. To this end, Atradius takes a proactive approach to information gathering, supported by visits, meetings as well as conference calls and it’s why we operate an open-door policy to any buyer.”
According to the Atradius Market Monitor, the residential construction subsector should remain reasonably buoyant in the short to medium term due to a continuing shortage of UK housing, with demand outweighing supply. Whilst the commercial construction sector performed reasonably well in 2018, businesses are increasingly being impacted by the reluctance of clients to place orders for new projects due to Brexit uncertainty. In the public construction segment, there are some major projects underway but these are not without their problems due to delays in delivery and severe pressure on costs. Meanwhile, the construction material subsector will be supported by the buoyant housebuilding segment although the short-term outlook remains volatile as a result of Brexit-fueled uncertainty.
Overall, 2019 is expected to be another difficult year for construction, with the challenges driven largely by the continuing Brexit uncertainty and fears over the potential impact on output, investment and availability of skilled workers.
Rockett continued “Uncertainty does not create an ideal backdrop for trade; nevertheless, business cannot afford to stand still. It is important to seize any opportunity to grow, but businesses must adapt to the more adverse risk climate and arm themselves with the right information, tools and protection. Thorough research and maintaining real-time analysis on the customer, market and wider sector form an essential pillar of any robust risk management strategy. Risk has always been an inherent part of trade and, therefore, businesses must evolve to manage these new risks in order to survive and thrive.”