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More construction companies facing financial problems, report says

The number of construction industry firms struggling with severe financial problems has increased by 41% in the last 12 months, a business restructuring firm has said.20 Oct 2011

Consultancy Begbies Traynor said that 1,214 construction businesses were suffering from "critical problems" with their finances during the third quarter of 2011 compared to 860 in the same quarter last year. The company also reported a further 11,187 companies experiencing "significant problems" with their financial health.

The firm said its 'Red Flag Alert' report findings "suggest market conditions in the construction sector are deteriorating".

Begbies Traynor said that it classes companies with 'critical problems' as those having to pay up at least £5,000 following county court judgments and/or those facing wind-up action.

Companies are classed as having 'significant problems' with their finances if they are either the subject of court action or have "poor, very poor insolvent or out of date accounts," the business restructuring specialist said.

The company said its findings supported data recently released by the Office for National Statistics (ONS). Last month the ONS reported that the number of new construction orders had fallen by 16.3% in the second quarter of 2011 meaning the total number of new orders was at its lowest since 1980.

"There has been a decline in new construction orders over the last twelve months as the sector is vulnerable to reductions in both capital and revenue spending by the public sector through central and local government and by private sector businesses trying to conserve cash," Gary Lee of Begbies Traynor said.

“While the construction of the Olympic venues in London may have had a positive effect in the South East, the situation is more serious elsewhere in the UK with companies battling for dwindling contracts. In addition the lack of confidence and the ongoing Eurozone crisis is likely to result in further delays to capital projects," Lee said.