Payment delays will hit construction, says insurer

Fragile construction industry conditions will mean more building subcontractors going out of business, says credit insurer Euler Hermes.

Larger building contractors are moving down the food chain taking jobs more usually done by their smaller peers and creating increased competition, eroding margins and putting pressure on prices, according to underwriting manager Kalpana Padhiar.

The company’s comments follow an alarming rise in the number of payment delays being reported to Euler Hermes by its construction clients and figures that show that almost 21% of claims received year-to-date relate to construction.

Padhair says that over the last 18 months, the construction sector has seen an increase in demand for credit insurance from new clients and emphasized the need for credit insurance to existing policyholders. “While there are some encouraging signs, we do not expect any sustained period of recovery until the middle of next year at least, and in the meantime there is quite a bit of pain to go yet”.

High-profile failures such as Rok, Connaught and C.J Haughey in the UK and McNamara and Pierse Contracting in Ireland all highlight the problems being faced in the sector by construction firms.

“Companies who have historically operated on a regional structure are suffering and are moving to an operational structure,” Padhiar says, “and others are diversifying either by value, by geography, or by skill set.

“There are too many contractors chasing too little business, and those operating fixed price contracts are being especially badly hit by the rising cost of raw materials, notably steel.”

She also believes that the true extent of troubles within the construction industry had been hidden by the amount of public sector work available: “Over the last few years, a resurgence in public sector contracts served to mask the real extent of the underlying demand,” she says. “With public sector projects now being cancelled, the impact on the industry will be transparent and severe.”

About Fiona Russell-Horne

Group Managing Editor across the BMJ portfolio.

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