Construction Sector Insolvencies Surge – What This Means for SME Developers and Funders

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The UK construction industry is facing its most turbulent period since the 2008 financial crisis. In the 12 months to April 2025, 4,032 construction companies entered insolvency, representing a staggering 17% of all business failures across the country, according to the latest data from the Insolvency Service.

This places construction firmly at the top of the UK’s insolvency rankings, outpacing wholesale, retail, hospitality, and manufacturing. The implications are significant for a sector that underpins national infrastructure, commercial investment, and private development. In short: the foundations of the industry are under real and growing strain.

Why Are Construction Firms Failing?

The collapse in construction is being driven by a perfect storm of financial and operational headwinds. Soaring material and labour costs have eroded already thin profit margins. At the same time, higher National Insurance contributions and minimum wage increases are inflating payrolls. Developers and contractors alike are also battling persistent planning delays, regulatory complexity, and the pressure of fixed-price contracts that offer little room for cost recovery or repricing.

Smaller and mid-sized contractors are bearing the brunt. Their balance sheets are typically less robust, and access to affordable working capital is limited. In June alone, more than 100 SME contractors filed for financial distress, a continuation of a troubling trend that reflects deep-rooted structural fragility within the construction SME landscape.

What This Means for Developers

For SME property developers, the rising wave of contractor failures is more than a warning sign, it’s a direct threat to project viability. Key challenges include:

• Build programmes halted mid-project

• Escalating costs from re-tendering or bringing in replacement contractors

• Delays to lender drawdowns and disrupted sales timelines

• Increased pressure on cashflow and contingency budgets

Where developers rely on specialist or local subcontractors, such as groundworks or concrete frame providers, failures can trigger major project delays. Replacing these firms often requires full revaluation, re-certification, and funder reassessment. The result? Time lost, costs increased, and investor confidence potentially shaken.

Funders Respond: Caution, Scrutiny, and Control

Development finance providers are understandably tightening their stance. Across the market, we’re seeing:

• More stringent due diligence on contractors and professional teams

• Increased demand for performance bonds, warranties, and insurances

• Greater scrutiny of procurement processes and delivery partners

• Higher contingency allocations built into funding agreements

• Slower drawdowns, with lenders adopting a more hands-on approach to project monitoring

Some lenders are pausing decisions altogether on at-risk schemes, particularly where developers have limited track records or delivery teams lack depth. That said, experienced sponsors with strong governance, clear reporting, and credible contractors in place continue to access funding, especially from non-bank and specialist lenders with appetite for complexity.

Insolvencies Are Rising – And the Trend Isn’t Over

Between January and June 2025, 150 construction firms entered administration, already exceeding the 147 reported in the same period last year. June alone saw 28 insolvencies, matching May’s total and far exceeding April’s 21. While slightly below the 31 reported in June 2024, the direction of travel is clear: insolvency volumes remain elevated, with no signs of relief.

Notably, commercial construction has seen the steepest fall in activity, while civil engineering also continues to weaken. The housebuilding sector has shown tentative signs of recovery, but momentum remains fragile and uneven.

Recent High-Profile Failures

Two notable insolvencies last month highlight the scale and severity of the sector’s distress:

• Corbyn Construction: A £33 million-turnover groundworks and concrete frame contractor entered administration, triggering the auction of extensive plant and equipment from its sister firm, Corbyn Plant Hire Ltd. Excavators, cranes, and concrete trucks are among the assets being sold, evidence of the capital being stripped from the market.

• Fosseway Transition Ltd: A Bath-based residential developer with over £9 million in combined assets entered administration, despite holding substantial land value. The case underlines how even asset-rich developers are not immune to the liquidity pressures caused by sluggish sales and construction delays.

What Developers Should Do Now

SME developers must adopt a more structured, risk-managed approach to project delivery. The focus must now shift to:

• Partnering with experienced professionals: Brokers, architects, solicitors, and project managers with proven track records

• Conducting detailed due diligence on all delivery partners

• Implementing robust Service Level Agreements (SLAs) with contractors and consultants

• Ensuring financial covenants and project milestones are achievable and backed by performance security

• Diversifying suppliers to avoid overreliance on any one subcontractor or vendor

This is not a market for the underprepared. But for those who invest in governance, process, and control, there are real opportunities. Distressed assets are coming to market. Contractors are keen for structured, well-managed projects. And funders are still active, if the right risk mitigations are in place.

Final Thoughts

The construction sector is undergoing a painful reset. For developers and funders, the question is no longer if disruption will affect delivery, it’s how well prepared you are to manage it.

Those who build resilience into their projects, surround themselves with trusted partners, and maintain control over every stage of the development cycle will not just survive, they’ll emerge stronger and more competitive.