Alastair Robertson, Carly Thorpe and Claire Askew of law firm Walker Morris examine the factors driving insolvencies and the outlook for the construction sector in 2027
Recent data from the Insolvency Service showed that construction continues to experience the highest number of insolvencies of any sector, accounting for 17% of all
industry cases.
Against a backdrop of continued market uncertainty, rising costs and evolving regulatory pressures, experts from law firm Walker Morris explore what is driving insolvencies across the sector today, where the emerging opportunities lie and what contractors, developers and investors can expect from the construction market in 2027.
A challenge of capacity rather than demand
Alastair Robertson, construction and engineering partner, said: “With construction continuing to account for the largest share of industry insolvencies, it is likely that this trend will continue into 2027. One of the key drivers is the growing disconnect between workload and profitability across the sector.
“Many businesses continue to report healthy pipelines of work, particularly as investment in infrastructure, transport, energy and data centre projects gathers pace, but the challenge is often not securing projects; it is delivering them profitably. Margin erosion, fixed-price contracts agreed in very different market conditions and delays to project commencement can all place significant pressure on cashflow.
“As a result, insolvencies are increasingly occurring despite strong order books, with profitability proving a greater challenge than demand. Contractors are therefore becoming more selective not only about the projects they pursue but also the contractual risks they are prepared to accept. This is likely to be particularly evident as more businesses pivot towards infrastructure and energy projects.
“Greater scrutiny of payment mechanisms, inflation exposure, design liability and programme risk allocation is expected to become a defining feature of procurement over the next 12 months, as contractors focus on securing work that can be delivered both successfully and profitably.
“There are, however, emerging green shoots across parts of the sector. Strong investment in infrastructure, transport, energy and data centre projects continues to support a healthy pipeline of future work and create opportunities for businesses looking to diversify.
“The challenge may ultimately be one of capacity rather than demand. If the anticipated project pipeline materialises, the industry could face renewed pressure on skilled labour and specialist supply chains. Businesses that can manage those constraints effectively, while maintaining strong cashflow discipline and careful project selection, are likely to be best placed to take advantage of future opportunities.”
Green shoots not spread evenly
Carly Thorpe, construction and engineering partner, said: “The green shoots emerging in infrastructure, transport, energy and data centre development are not being felt equally across the construction market.
“Many residential developers are facing increasing viability pressures as a result of Gateway approvals, high interest rates and additional costs associated with the Building Safety Levy. The government’s proposed Your First Home scheme could help improve conditions over time, but any benefits are unlikely to be felt immediately.
“Looking further ahead, the Commercial Payments Bill, which is anticipated to become law in 2027, has the potential to provide better support for businesses throughout the supply chain by strengthening payment practices and removing cash retentions.
“The government’s devolution agenda could also deliver long-term benefits. Greater local control over housing, infrastructure, skills and investment priorities has the potential to create more responsive decision-making and better align investment with regional needs.
“While transferring further powers to the regions will inevitably bring challenges around capacity and implementation, greater certainty around local investment priorities could help boost business confidence, support residential development and contribute to a gradual narrowing of the current two-speed construction market.”
Insolvency figures do not show full extent of strain
Claire Askew, restructuring and insolvency partner, said: “The outlook for all businesses, not just those in the construction sector, is likely to remain challenging in the coming 12 months.
“The economic headwinds businesses have been navigating, including rising fuel and energy costs and increased tax and employment costs, are unlikely to change anytime soon. Cost of living pressures are also expected to continue to weigh on consumer spending, affecting not only housebuilding activity but also other consumer-facing sectors such as hospitality, leisure and retail.
“Insolvency figures alone do not reveal the full extent of financial distress across the economy. Many businesses are surviving through a combination of cost reduction measures, revised lending arrangements and shareholder support. The challenge will be whether those measures remain sustainable if economic conditions deteriorate further as a result of geopolitical factors.
“For many businesses, the issue is not necessarily one of viability but of capital structure. Many remain operationally sound but are carrying debt taken on during a prolonged period of historically low interest rates. As those facilities mature and require refinancing, businesses that borrowed heavily during periods of cheap debt may come under increasing pressure, particularly if borrowing costs remain high. At a time when margins are already being squeezed, higher debt servicing costs could place further strain on cashflow and profitability.
“However, as more organisations adopt artificial intelligence to improve productivity, manage costs and address labour shortages, those efficiency gains could provide a meaningful boost to profitability and competitiveness in the year ahead.”
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