LONDON: "Despite a 4% growth announced last month in the GDP figures coupled with a continued decrease in insolvencies, the construction industry is still under particular strain," said Mark Ranson, partner at Baker Tilly Restructuring and Recovery LLP.
“Although the private sector is beginning to gain momentum from a near standstill, the cuts in the public sector will certainly impact this negatively. This is likely to be compounded by the VAT hike in January 2011.
“The Rok Group is another serious example of the knock-on impact of the spending cuts to contractors announced back in May. The construction industry was particularly hard hit during the downturn, even now, the private sector is struggling to regain growth.
“This was seen back in September with the collapse of Connaught which not only affect the building contractor itself but the suppliers to it. Rok stated that underperformance in its plumbing, heating and electrical division, which was highly reliant on the new-build housing sector, was the cause of major difficulty. Also Rok’s choice to employ direct labour, rather than sub contract, would add to pressures. Finally the harsh weather at the beginning of 2010 is probably also as a contributing factor.
“As the Q3 insolvency figures show, many contractors are still employing the use of CVA’s (Company Voluntary Arrangements) to allow continuation of trade and for the survival of the business. Many more will have Time to Pay (TTP) arrangements with HMRC. The real state of affairs, we suspect, will be seen this quarter and into the first half of 2011.”
