International Construction Law Review
INSOLVENCY ISSUES IN THE CONSTRUCTION SECTOR AND HOW TO MANAGE THEM IN A GLOBAL CONTEXT
Frédéric Gillion
Partner, Pinsent Masons LLP (Singapore)
Toshima Issur1
Associate, Pinsent Masons LLP (Paris)
INTRODUCTION
The construction industry is more prone to insolvency than most and systematically features on the high end as far as the number of insolvencies is concerned. The statistics published by the UK government unequivocally confirm this trend which has been ongoing over the past years and has carried on through 2021. Based on the latest figures ending at the first quarter of 2021, the construction industry remains the hardest hit economic sector with a total number of 1,721 insolvencies representing 16 per cent of the overall total.2 The collapse of the construction giant Carillion in January 2018 is a baleful reminder that size is no bar to insolvency.
A number of factors may account for this state of affairs including:
- • Established practice in the construction industry where it is usual to find contractual clauses providing for stage or periodic payments in arrears which means that contractors may have to prefinance a substantial part of the works in anticipation of payment, thereby generating potential cashflow issues;
- • The competitiveness inherent to the construction sector which may lead contractors to submit unrealistically low bids at tender stage, leaving them particularly vulnerable to any unexpected delays or increased costs which will adversely impact their already low margins; and
- • The particular organisation of construction work based on the existence of chains of contracts which means that the insolvency of a
1 The views expressed herein are entirely those of the authors and not necessarily those of the firm or organisation with which they are affiliated.
2 https://www.gov.uk/government/statistics/company-insolvency-statistics-january-to-march-2021, commentary (last accessed 2 December 2021).
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