The UK construction sector is facing a sharp increase in company insolvencies, fuelling widespread uncertainty across the industry. Over the past year, financial distress in the sector has jumped by 58%, with real estate firms hit even harder—up 63%. For design consultancies, engineering firms, and contractors, the current economic landscape is fraught with risk.
A Growing Financial Crisis
Several key pressures are driving this trend. Rising interest rates, persistent inflation, and a slowdown in project approvals have all squeezed margins. Long payment cycles—common in construction—exacerbate the problem. When clients delay or default on payments, even well-established firms can be pushed into financial difficulty.
According to CADagency’s ongoing industry surveys, 43% of design consultancies reported concerns about delayed payments in early 2025, up from 37% in mid-2024. Meanwhile, more than half of respondents (52%) said at least one major project had been cancelled or postponed in the past six months due to financial instability.
Employment Impact Across the Sector
This uptick in insolvencies is having clear consequences for the workforce. Redundancies are on the rise, and 31% of surveyed design professionals have expressed concerns about job security. While overall salary levels remain steady, growth has stalled: average increases dropped to just 2.9% in early 2025, down from 5.4% the previous year.
Hiring has slowed too. Job postings in the sector fell by 14% across January and February 2025 compared to the previous quarter, suggesting that firms are prioritising financial resilience over headcount expansion.
Protecting Against Financial Risk
In this climate, companies across the design and construction supply chain must take proactive steps to protect their operations. Some key strategies include:
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Tighter Contractual Safeguards: Clear payment terms, late payment penalties, and well-drafted protective clauses can help limit exposure to payment delays.
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Revenue Diversification: Broadening service offerings or client bases can reduce reliance on a single income stream and boost resilience.
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Improved Cash Flow Management: Building stronger cash reserves and limiting dependence on long-term credit can help firms absorb financial shocks.
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Enhanced Risk Assessment: Conducting due diligence on clients and project partners before committing to contracts can reduce the likelihood of exposure to failing businesses.
The Role of Government and What Comes Next
While the government has pledged increased funding for infrastructure, slow rollout and planning bottlenecks mean short-term relief is limited. Industry bodies continue to lobby for faster payment practices in public sector projects and additional support for vulnerable firms.
Despite current difficulties, there is cautious optimism for recovery in the latter half of 2025—especially if inflation stabilises and interest rates begin to ease. Still, firms will need to remain flexible, prepared, and vigilant in the months ahead.
The surge in insolvencies is a stark reminder of the financial fragility across the construction ecosystem. Yet for firms that act early—tightening controls, improving cash flow, and diversifying income—there is a path through the uncertainty. Strategic planning and financial discipline will be critical as the sector works toward stability and, eventually, renewed growth.
