Building Firm Folds Every Four Hours as Bankruptcies Soar

A construction company is going bust every four hours as the full extent of the economic downturn starts to hit home. Figures from the Insolvency Service show 500 building firms went to the wall during the first quarter of 2008 - the highest rate in five years.

Construction failures have risen 20% compared with the same period last year - far faster than the all-industry average of 12% across the country.

Building bankruptcies were even higher than the 431 insolvencies registered in the hard-hit retail sector and the figures fly in the face of conventional wisdom that construction is among the last to suffer in an economic downturn.

Mike Jervis, partner in business recovery services practice at Price waterhouse Coopers, said: 'It has happened quite quickly and construction does surprise me. We are in unprecedented times vis-à-vis the type of downturn we are in. It's got a very different feel to the last downturn, which was the dotcom downturn five years ago.'

Subcontractors in the housebuilding and commercial property sectors are suffering most as firms at the top of the supply chain became more cautious.

Jervis said: 'One thing we have seen with the subcontractor base is decreases in the proportion of the business committed. That's a clear indication to me that housebuilders are turning off the tap - and very quickly as well. And that is having a clear knock-on effect through the industry.'

The National Federation of Builders has also seen a record 56% increase in calls from builders seeking legal advice over the mounting numbers of customers who do not pay their bills.

But John Slaughter, director of economic affairs at the Home Builders Federation, played down the current market dangers.

He said: 'We are not directly seeing a move to a trend towards insolvency. It really isn't part of a picture we particularly recognise yet. The market is challenging, though, and people are having to look at cost control. But we think it is still early days and see an opportunity for the government to act and manage the situation.' .