By Liam Gratty, Director of Strategic Services
Market Landscape
The UK construction sector remains one of the most dynamic yet financially vulnerable parts of the economy. While overall output has nudged ahead modestly, underlying distress continues to surface in company failures, especially among suppliers serving the housing development and maintenance sector.
The construction market still records the highest number of company insolvencies of any sector, a trend accelerating over the last few years as economic pressures mount.
Many construction businesses have entered into insolvency making up the biggest share of business failures across the economy. The fall of major players among some of the UK’s biggest contractors and suppliers has sent shockwaves through the industry, sparking thousands of job losses and threatening public sector project pipelines.
Impacts upon SMEs
Smaller subcontractors and specialist trades face the risk of cash-flow pressures, often triggered by late payments and tight margins. Compounding these trends are cost pressures such as materials cost, labour shortages, and rising regulatory compliance burdens. These factors put pressure on profitability and widened risk exposure.
Social Housing Sector
The UK is grappling with a continued social housing crisis, high demand, limited supply, and rising cost pressures.
Government funding for affordable housing development and decarbonisation remains significant, however as referenced in our previous blog, the withdrawal of Eco funding cast further doubt upon the future of those SMEs who have seen significant diversification and growth to fulfil the demands of the social housing decarbonisation market.
This funding supported social housing providers to deliver their affordable warmth programmes at a time they are also facing cost pressures around compliance and rising maintenance obligations. When suppliers delivering social housing programmes face insolvency, it risks delaying or derailing critical projects, reducing delivery capacity at a time when need is acute.
Procurement Risks
Quite rightly in the public procurement space, especially for housing associations, councils, and government agencies procurement activity will be increasingly shaped by a level risk aversion. Insolvencies disrupt delivery and can expose our members to cost overruns, re-procurement delays, legal disputes and importantly impact upon services that residents rely on the most.
Contract Risks
The failure of a major supplier often ripples through subcontractors and sub suppliers which undoubtedly exacerbates delivery risk across a project’s supply chain. This can result in slower payment cycles from larger suppliers to smaller subcontractors which in turn may result in cash constraints and heighten insolvency risk.
Frameworks Won’t Stop Failure, But They Will Stop Chaos!
To build resilience and reduce downstream risk, CHIC is here to support members throughout the end to end process of a procurement exercise.
Compliant routes to market, established by CHIC, provide pre-qualified frameworks which allow asset management & housing providers to engage contractors, consultants and suppliers which have undertaken procurement assessments, reducing contract lead in times and risk. The CHIC service includes:
- Financial viability assessments, looking at credit history, working capital, and risk signals.
- Performance, Competence & Quality assessment. (including social value outcomes)
- The promotion of fair and prompt payment terms that should cascade provisions in subcontract chains helps protect smaller suppliers’ cash flow.
- Structured framework contracts to utilise annual price adjustment clauses and continued supply chain dialogue to mitigate or as far as possible, foresee unexpected cost swings.
- Dedicated Partnerships Team to support and manage supply chain relationships and provides a key source of market intelligence.
Managing Supplier Failure, The Role of Frameworks in Business Continuity
No matter how robust the due diligence, monitoring and contractual safeguards a framework provider puts in place, it is not possible to fully eliminate the risk of supplier insolvency in a volatile economic environment.
What can be controlled, however, is the response and, critically, the overall impact on residents.
By leveraging established relationships across a wider, pre-vetted supply chain and using compliant alternative routes to market, framework providers can act quickly to source and negotiate replacement suppliers. This approach helps maintain continuity of service, protects residents from disruption, and supports the integrity of the Golden Thread by ensuring that accountability, product information and safety data remain intact throughout any supplier transition.
Looking Ahead, Why the Sector Must Shift From Reactive to Ready
The economic pressures that have driven insolvencies will not disappear overnight. However, public procurement reform can strengthen risk management, reduce supply chain fragility, and enhance delivery confidence.
A more diversified contracting market and improved payment practices can help protect SMEs, which are often considered the backbone of housing and asset management delivery.
Supporting initiatives that align long-term delivery incentives between Suppliers and Members can reduce trends of spot-buying, short-term bidding risks and bolster long term, efficient working relationships.
Ultimately, shifting from reactive problem-solving to proactive resilience, delivered through risk assessment, financial oversight, and an ethos of collaborative procurement can help stabilise the sector while continuing to address the needs of CHIC members delivering services to their residents.
