Company failures jump 20% in fourth quarter of 2010

The number of construction firms that went into administration rose 20% in the last three months of 2010 compared with the third quarter, increasing from 68 to 82.

Although the increase does not bode well for the construction industry at a time of falling output, it is 9% below the same period in 2009, when 90 firms were pushed into administration, and way below the worst point of the recession when 156 firms went under at the end of 2008.

The bulk of the figures are made up of smaller firms, especially in the general contracting sector, which comprised 67% of the total in Q4 2010.

Rupert Rawcliffe, construction director at Grant Thornton, said: “The severe weather conditions in the latter part of 2010 played a key part in the failure of some construction companies where a halt in activity over a number of weeks was enough to tip them over the edge.”

A stricter approach towards firms in trouble and owing tax to HM Revenue and Customs also had an impact, according to Phil Pierce, partner at Baker Tilly Restructuring and Recovery.

Pierce said: “Many contractors are still using company voluntary arrangements to allow continuation of trade and for the survival of the business. Most likely, many will have combined it with Time to Pay (TTP) with HMRC.

“However, it appears HMRC may be coming under stricter guidelines in situations where a company is unable to meet its tax liabilities.

“Recent figures indicate that the number of TTP arrangements has almost halved in 2010. The real state of affairs, we suspect, will only be seen as the year unfolds”.

The increase in administrations in the sector coincides with a 3.3% fall in construction sector output during the final quarter of 2010. This decline surprised many economists who were expecting the economy as a whole to grow between 0.1% and 0.8% in Q4 when in fact it registered a 0.5% fall.