Mid Sized Construction Firms Hardest Hit

According to Experian, a global provider of information services, mid-sized construction firms have been particularly hard hit since 2007.

An analysis of the construction sector by Experian between 2007 and the present day reveals the inability of mid-sized firms with 26-50 and 51-100 employees to compete with the financial heft and resources of their larger rivals because they lack the flexibility and low overhead of smaller players.

The analysis has also revealed that although insolvencies within the sector have stabilised, the overall financial strength has dropped to a lower level than during the 2009 slump, led mainly by the mid-sized businesses. Construction’s tiniest and biggest businesses suffered the least, with insolvency rates that were lower than those of the industry’s medium-sized businesses.

Key highlights from the analysis include:

  • The largest firms (501 employees or more) saw their financial strength score remain above 80, indicating relatively robust financial health
  • However, firms with fewer than ten workers saw their average score drop as low as 78.6 in May 2010, but these businesses still outperformed or matched the sector’s average score from 2007 to 2011. •
  • Companies with 26-100 employees are considered to be mid-sized, with a score of 78.14 or 78.34 by the end of June 2011, up from a January 2010 low of 77.3 or 76.6.
  • There has been a 1.11 percent average annual insolvency rate for businesses with 26 to 50 employees since 2007.
  • In terms of construction, the North East of England has consistently shown the highest insolvency rate in the UK, at 0.7% of the total business population, since 2007.

“The challenging conditions in the construction sector mean that competition is now fierce and larger firms are bidding for the smaller contracts that they would have normally passed on,” said Simon Streat, managing director of Experian’s UK SME business.

In order to compete with their larger counterparts, smaller and mid-sized businesses are being forced to look further and wider for new business and to offer more competitive prices. Smaller construction firms that have lower overheads and more flexibility are managing to work around this, but mid sized firms are finding their revenues increasingly squeezed while still having to maintain the same basic outgoings.

“The fact that insolvencies have stabilised is a positive sign, but with financial strength of these firms remaining at a low level, it indicates that they are not out of the water quite yet. As a result, it’s critical that these small and medium-sized businesses act quickly to protect themselves. This means changing the way their find new and target customers and tying new customers into robust and stringent contracts to protect against late or non-payment.

Economic data like insolvency rates and financial strength scores are also important for these companies to keep an eye on.” With this data, companies can see which regions have a good chance of securing profitable contracts and which ones should proceed with caution before pursuing one.

Last Updated on December 28, 2021

Indra-Gupta

Author: Indra Gupta

Indra is an in-house writer with a love of Newcastle United and all things sustainable.

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