By Anjali Shrivastrava from Michael Gerard Solicitors

Everyone working in the construction sector is familiar with the daily news of some or the other contractor going bust. Since the advent of the pandemic, everyone hopes the next year would be better, but the insolvencies are not stopping. The construction sector is facing a multiyear insolvency crisis, with over 3,900 firms collapsing in 2025 alone, representing the highest sector failure rate for the fourth consecutive year. Its difficult times for the company and their staff, subcontractors and suppliers who may be out of work or lose money as a result.

Key driving factors include:

• Fixed‑price contract losses – Due to fixed‑price clauses and the absence of fluctuation provisions, many firms have been forced to complete projects based on prices quoted in 2019/2020.

 

• High inflation and rising costs – Volatile material costs (steel, timber, etc.), along with rising labour and plant costs, have squeezed margins and pushed many contracts into loss.

 

• Supply chain instability – We live in turbulent times where the next crisis can emerge overnight. Supply of materials can be disrupted at any moment. With insolvencies now common, the collapse of a single major contractor often triggers a domino effect across subcontractors who are left unpaid.

 

• Economic pressures – High interest rates, restricted access to credit, and slowing demand for new projects are placing further strain on already‑thin margins.

 

• Poor cash management and weak financial controls.

 

• Minimal investment in technology – Reliance on manual processes for quoting, pricing, ordering and finance increases costs and errors.

 

• New regulations – The Building Safety Act 2022 extended liability for historical defects from 12 years to 30 years. Some contractors, such as Ardmore Construction, reportedly entered insolvency due in part to the scale of potential historical liability. Increased compliance requirements have added further burdens to firms already under pressure.

 

• Compromised record‑keeping – Poor documentation leaves firms vulnerable to onerous defect claims, adjudications, and disputes.

 

 

Other contributing factors – Weak market confidence, delays in project starts, programme slippage, labour shortages, legacy liabilities and rising employment costs.

What can a firm do to avoid going bust?

• Prioritise a well drafted contract

The contract sets the allocation of risk. Always ensure you have one—and scrutinise it. On fixed price contracts, consider fluctuation clauses linked to work categories or resource specific inflation indices. Include mechanisms allowing price adjustments when a particular item inflates beyond a set threshold (e.g., 100%).

Where possible, negotiate for advance payments and shorter valuation/payment cycles to protect cashflow.

 

• Mirror your risk profile down the supply chain

If you must accept a fixed price contract, try to secure similar arrangements with suppliers. Do not be pressured into “buying work” or accepting unrealistically thin margins.

 

• Invest in technology

While it may feel like a stretch, automating quoting, pricing, ordering and finance reduces staff costs, increases accuracy and improves long term margins.

 

• Have a contingency plan

If a project stalls or a client defaults, bridging finance, cashflow loans, or construction loans can stabilise operations. For property related works, home construction loans may also be suitable.

 

• Stay on top of payments and retentions

Do not allow outstanding sums to drift from “next week” to “next month.” Vigilance prevents minor delays from snowballing into cashflow crises.

 

• Watch for early warning signs of insolvency

One insolvency in the supply chain can destabilise cashflow, disrupt programmes and trigger costly disputes. Engage early with affected parties to find practical solutions; mediation or negotiated agreements may preserve a project. If a party refuses to engage, move to adjudication promptly—an adjudicator’s award may secure payment ahead of a potential insolvency, reducing the risk of becoming an unsecured creditor.

 

• Appoint a Finance Director/CFO

A bookkeeper records the past. An accountant reports the past. A Finance Director/CFO protects the future. They provide:

• Financial strategy aligning budgets with long term goals
• Risk management and mitigation
• Funding and lender relationships
• Detailed cashflow forecasting and scenario planning
• Ensuring cashflow supports operations and growth

 

• Always, always keep extensive records.

That small dispute you had on site—the one everyone shrugged off as minor—record it. If the issue later crystallises into an adjudication, it is the records that will protect you and not the actual position on site. Engage with the contract administrator and don’t go off on a frolic of your own. Engage with the contract administrator and don’t go off on a frolic of your own. If there is a verbal instruction to change the design, record that over an email o that any later allegation of non‑compliance cannot be placed on you.

Learn to differentiate between contract documents and pre‑contract documents—what you tendered may not have been incorporated into the JCT.

 

• Do not cut corners with quality. You do not want a latent defect discovered years later that results in you having to pay for the entire job. If a patent defect arises, cure it as soon as possible or offer to remedy it at a significantly reduced rate. If you have offered to cure the defect but the employer refuses due to programme pressures, the risk shifts to the employer. The employer cannot later hire another contractor and charge you for the works. They have a duty to mitigate, and your discounted rectification offer will set the benchmark.

 

• If a contract becomes too complex, do not hesitate to seek legal advice to understand any onerous clauses.

 

• Be vigilant with payment applications and pay less notices

A single error can result in a “smash‑and‑grab” adjudication and exhaust cashflow. Even if you have a strong case on true valuation, you may face prolonged delays and increased costs before being paid. In a cash‑dependent industry, even a few months’ delay can be the difference between thriving and going bust.

 

All of this may feel burdensome, but it could save you thousands of pounds in the long run

 

Conclusion

The industry is, undeniably, in a difficult place—driven in large part by increasingly onerous, high‑risk (and many would say fundamentally unfair) contracts, reinforced by a legal framework that continues to uphold them. The question is whether contractors will finally learn to say “no” to such terms and collectively push for the change the sector so urgently needs.

History suggests that whenever a contractor collapses, any gap in the market is quickly filled by another firm willing to take on the same risky terms. Until the industry steps back and refuses to accept unmanageable obligations, the cycle of insolvencies will continue. Real change will only come when contractors recognise their value, protect their position, and refuse to sign contracts that jeopardise their very survival.