With the news emerging that the UK’s second largest construction company has collapsed - a cloud of uncertainty will start to hover over the possible impact this will have on other construction firms. No doubt, there will also be several other issues which spring to mind including the effect this news will have on sub-contractors and uncompleted projects, as well as its impact on jobs and pensions.

In fact, although the news would’ve come as a complete shock to some, especially to the many thousands of employees who are still employed by Carillion, the announcement is perhaps not all that surprising when you consider the 3 profit warnings released in the last 6 months. Furthermore, it was as recently as September 2017 that the company had reported a loss of £1.15 billion. The report cited Carillion’s riskier contracts and payment delays in the Middle East as major contributory factors. It also revealed that the company had amassed a £587 million pension shortfall, further showcasing severe financial difficulties which appeared to be brewing from within. Its market capitalisation plummeted by almost 80 percent as a result.

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A recent study into the effect of insolvency on the construction sector has strengthened calls for a more robust framework to protect retention monies.

Retentions are commonplace in the industry and estimates suggest they apply in 65% of all construction related contracts in the UK. They can vary in value depending on the type of work, the size and nature of the project and the parties involved but will typically be up to 5% of a contract’s value and usually deducted at source from interim applications. They act as a form of security, or bond, which the employer/main contractor can use as an incentive to ensure project completion and the making good any defects, or to cover the cost of so doing. Sub-contractors are not immune, meaning retentions are withheld at all levels on any given project.

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Back in February, I wrote an article about the rise in household debts in the UK citing the cost of borrowing and the low interest rates as reasons why many had overstretched their financial limitations. This was supported by official statistics from The Insolvency Service which revealed that personal insolvencies had affected over 90,000 individuals in 2016 – a figure which saw a 13% rise from 2015. The significance of this was compounded by the fact that these figures were the highest recorded since 2010, which is why I asked the question on whether the tide had started to turn for household finances. Nine months later, reports have highlighted a worrying trend – but this time, in relation to corporate insolvencies as well.

It was only a little over 3 weeks ago that I touched upon the lack of growth being reported by some organisations, with the main contributor being a fall in sales volumes for several companies. Growth had stalled – and significantly, according to a market research report by the insolvency trade body R3, levels of growth reported were at their lowest since July 2013. In April this year, 64% of businesses had reported some sort of growth – yet this figure was reduced to 53% just five months later.

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Chapter Hall; Image courtesy of The Museum of the Order of St John

On Thursday 2 November 2017, PCR officially welcomed our new partner Stratford Hamilton to the business with a drinks and canapé reception at The Museum of the Order of St John.

We were joined by business owners, local traders, accountants and lawyers – some who had travelled far to be with us on a pleasant evening of networking at a fantastic venue. Guests also wandered the museum which tells the story of the Venerable Order of St John from its roots as a pan-European Order of Hospitality Knights founded in Jerusalem during the crusades, right to its present commitment to providing first aid and care in the community through the St John Ambulance Brigade.

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A recent study carried out by the insolvency trade body R3 in conjunction with BDRC Continental appeared to show that the picture was worsening for businesses across the UK, with fewer companies now reporting growth in comparison to earlier in the year.

The findings of the report highlighted that as of September 2017, 53% of businesses had reported one or more signs of growth. This figure saw an 11% decrease compared to the figure recorded in April this year, where 64% of businesses had reported some sort of growth. In fact, what made this figure more alarming was the fact that it was the lowest percentage of reported business growth since July 2013. The most common reason for signs of distress emanated from ‘Decreased sales volumes’, which was reported by the greatest proportion of firms surveyed, at 12% - up from 7% in April 2017. The number of maximum overdrafts being used by firms each month also increased, a figure which jumped up by 4% compared to this time last year.

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