As construction businesses continue to face mounting financial difficulties, the latest administration figures reveal the scale of the challenge facing the sector. Rising costs, fragile supply chains and persistent cashflow pressures are pushing more firms towards insolvency, writes Ruth Phillips, construction partner at national law firm Shakespeare Martineau
The latest administration figures for the construction sector paint a worrying picture. During the first six months of 2026, 88 construction companies entered administration – an 11% increase compared with the same period last year.
While construction was not the only sector facing heightened financial pressure, it was among the five worst affected industries, behind real estate, retail, manufacturing and hospitality.
These figures reflect the reality many businesses across the sector are facing: operating in an increasingly challenging environment with limited capacity to absorb further shocks. The rise in failures is not unexpected. The construction industry has been navigating a sustained period of uncertainty and many businesses are now feeling the cumulative impact of pressures that have built up over several years.
Rising material and labour costs, higher borrowing rates, geopolitical instability affecting energy prices and subdued economic growth have all contributed to a difficult trading landscape.
However, one of the most persistent challenges remains the issue of cashflow across the construction supply chain.
Cashflow critical
For many contractors and subcontractors, particularly SMEs, cashflow is the difference between survival and failure.
Construction firms often operate on tight margins and when payments are delayed or unexpected costs arise, the impact can quickly become severe.
The problem is particularly acute for specialist subcontractors that may have limited financial reserves. A single delayed payment or an unforeseen increase in project costs can create significant pressure, especially where firms are tied into fixed-price contracts agreed before inflationary pressures took hold.
This is why payment practices remain such a critical issue for the sector. Construction has long struggled with extended payment cycles and while initiatives to improve payment culture are welcome, meaningful change will take time to become embedded.
In the meantime, businesses must focus on what they can control. That means maintaining close oversight of cashflow, understanding contractual commitments and being disciplined when deciding which projects to pursue.
Taking on work at unsustainable margins may secure short-term revenue but it can create much greater problems further down the line.
Businesses need to be realistic about costs, risks and their ability to absorb unforeseen changes before committing to new contracts.
Pressures beyond construction
The construction industry’s challenges also need to be considered within the wider national picture. Across all industries, UK administrations reached their highest level since 2010, with 1,159 companies entering administration in the first half of 2026 – a significant increase compared with the same period last year.
This demonstrates that the current pressures extend beyond construction. For some businesses, the latest administration figures represent the point at which available options have become increasingly limited.
Companies that have successfully weathered years of economic uncertainty are now reaching a critical stage.
Take action
However, financial distress does not have to mean business failure. One of the most important factors in determining whether a company can restructure, protect value or continue trading is how early action is taken.
A common challenge is businesses waiting too long before seeking advice. Directors may hope that improved trading conditions, a new contract win or a delayed payment will resolve financial pressures.
While those outcomes are possible, waiting until cashflow becomes critical can significantly reduce the options available. The businesses that are best placed to navigate uncertainty are those that identify risks early and respond proactively.
Regular financial reviews, robust contract management and a clear understanding of commercial exposure can help address issues before they become unmanageable.
There are reasons for cautious optimism. Proposed reforms aimed at tackling late payment, alongside long-awaited reform of retention practices, could provide greater protection for businesses across the supply chain in the future.
Retention reform in particular has been a long-standing ask of the sector, given the extent to which cash withheld from contractors – often for defects liability periods lasting well beyond practical completion – ties up working capital that firms can ill afford to lose.
However, firms cannot rely solely on regulatory change to resolve the immediate pressures they are facing.
The construction industry has always demonstrated resilience, adapting through economic cycles, regulatory change and shifting market conditions.
That resilience will be tested again but businesses that prioritise financial discipline and early intervention will be better positioned to withstand ongoing uncertainty.
The rise in administrations is a clear warning sign, but it also presents an opportunity for the sector to reflect on how it manages risk.
Strengthening payment practices, improving supply chain relationships and making informed commercial decisions will be essential to creating a more sustainable construction industry.
The businesses that succeed will not necessarily be those untouched by current challenges – because very few are. They will be those that understand the risks, act early and make decisive decisions when pressure begins to build.
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