Understanding the Increase in Construction Insolvencies in 2023

Discover the challenges facing the construction industry, including rising material costs, labor shortages, and systemic planning difficulties. Explore insights and strategies for industry professionals to navigate these obstacles and secure a thriving future for the construction sector.

The construction industry is vital to the economy but a recent report from Deloitte has shown that construction insolvencies in the Republic of Ireland have more than doubled in the first half of this year, reaching 50 compared to 23 in the same period last year. The increase in construction insolvencies has been attributed to material and fuel cost inflation, labour and supply shortages, viability issues, and systemic difficulties in the planning system. Here, we explore the reasons behind this trend and provide insights for industry professionals.

Material and Fuel Costs Inflation

One major concern for construction companies is the rising cost of construction materials and fuel. Global events such as the COVID-19 pandemic and Brexit have resulted in supply chain interruptions, leading to price increases. In addition, environmental regulations and sustainability initiatives have further increased the cost of raw materials, such as timber, steel, and concrete. With construction companies having to pay more for materials, it becomes even more challenging to stay profitable.

Labour and Supply Shortages

The construction industry is facing a significant labour shortage due to various factors, including Brexit, the COVID-19 pandemic, and ageing construction workers retiring. As a result, many companies have been struggling to find qualified workers. Moreover, the logistical costs of finding new suppliers due to global events have led to further delays and reduced productivity.

Viability Issues

The viability of a project can significantly impact the financial performance of a construction company. Projects that are not feasible can lead to a significant loss of revenue, particularly if the company has already invested in the work. In some cases, companies failing to identify the cost challenges can lead to insolvency.

Systemic Difficulties with the Planning System

Lastly, there are various difficulties resulting from legal and planning restrictions that make it hard for construction companies to thrive. These restrictions range from planning permissions taking longer than expected and costs exceeding the budget, as a result of changes to the project, or planning restrictions, and new regulations.

Despite the challenges faced by the construction industry in recent years, there are still opportunities for growth, innovation, and recovery. It’s imperative that construction companies complete thorough financial analysis and assessments, understand their project viability and work closely with their suppliers. According to research, 74% of all small businesses fail due to poor cash flow and financial management, and construction companies should pay attention to their financial management and undertake proactive measures to secure their financial future. The construction industry will always play a vital part in our economy and, with the right tools, materials, and strategies to lessen the impacts of the challenges facing unique industries today, it can continue to thrive.

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