Blog
Construction Insolvencies: The Harsh Reality Behind Unsustainable Tendering
Saturday 29th March 2025
Jon Richards
In my last blog, I wrote about how razor-thin margins and aggressive pricing are driving contractors to win tenders at break-even — or worse.
This follow-up looks at the consequences of that strategy.
The data speaks for itself.
The Cost of "Buying Work"
“Buying work” happens when contractors, desperate to keep the pipeline moving, lowball their tenders to the point where there's no profit in the job — just costs.
This practice is dangerous but prevalent in the industry – as backed by the data.
In 2024:
🚨 Over 4,000 UK construction businesses went into administration or liquidation in 2024
📈 That’s still 25% higher than pre-pandemic levels (despite being slightly lower than 2023)
📉 Roughly 1 in every 90 construction businesses became insolvent last year (≈1.1%)
🏗️ Construction accounted for 16–17% of all UK company insolvencies — more than any other sector
⚖️ That’s twice the average insolvency rate across all industries
👷♂️ And it wasn’t just the big firms — 58% were subcontractors and small businesses, often the most vulnerable when things go wrong
So why does construction see more insolvencies than any other sector?
It’s rarely just one thing, but it’s hard to ignore the impact of:
🔻 Thin margins
💸 Cashflow pressure
⚠️ High-risk projects (weather delays, design issues, supply chain failures… the list goes on)
When you’re running that close to the edge, one slip-up can bring the whole thing down like a house of cards.
Whether it’s timing issues that leave you out of cash or simply not pricing work sustainably in the first place, the result is the same and it’s playing out across the industry.
When Winning Work Means Losing Everything
Many contractors feel they have no choice but to keep the pipeline full — even if that means pricing work at break-even or below.
But if you’re taking on £5m+ contracts for 2% profit (or less) and shouldering all the risk, are you really building a business? Or just rolling the dice?
The reality is that fixed-price contracts, rising material and labour costs, and delayed payments create the perfect storm. It only takes one or two unforeseen issues — a weather delay, a supply chain disruption, or a late-paying client — to turn a marginal job into a loss-making one.
Even profitable businesses can fail when cashflow dries up. In this industry, it’s not enough to be profitable on paper — you need to stay liquid. And when a contractor collapses, the ripple effect across the supply chain can be brutal, dragging down subcontractors and suppliers with them.
What might look like a "win" on day one can quickly become a burden that breaks the business.
Why Are Construction Margins So Low Compared to Other Industries?
There’s a perception in construction that the main contractor is simply a "middle man" — passing work down the line to subcontractors who "do the work." Because of that, there’s an assumption that they shouldn’t earn more than a small percentage.
But this thinking doesn’t hold up when compared to other industries:
🛒 Retailers often sell products at a 30–50% markup, even though they didn’t manufacture anything themselves.
🧑💻 Recruitment agencies regularly charge clients double digit % fees for placing the right candidate.
🏢 Consulting firms charge high day rates while outsourcing research, delivery, or admin to third parties.
In all these cases, the business still makes a healthy margin — because they take on responsibility, manage the relationship, and ultimately deliver the outcome.
In construction, the main contractor is doing all of that and more. They’re managing multiple trades, sequencing complex work, taking on contractual risk and dealing with enormous amounts of red tape; health & safety requirements, design changes, insurance and compliance. If something goes wrong — the buck stops with them.
And yet, margins of 2–5% are seen as the norm or acceptable.
All of this is happening in an industry facing a severe workforce crisis. There simply aren’t enough people coming through to replace those leaving.
Yet we expect these businesses to deliver the housing and infrastructure projects that are desperately needed, all while operating on unsustainable margins.
No other industry would accept that — so why does construction?
It's time to challenge the belief that main contractors should work for the bare minimum, while carrying maximum risk.
There’s a Better Way Forward
This isn’t about doom and gloom — it’s about being proactive. The challenges around low markups and rising costs aren’t going away on their own, but the construction industry doesn’t have to accept this as the norm.
Stakeholders across the industry — from architects, quantity surveyors and contractors, to government and commissioning bodies — need to come together to deliver better outcomes.
That means earlier collaboration, greater transparency and a shared commitment to realistic costing, risk management and sustainable delivery.
We should be targeting cost savings through innovation, smarter planning, and technology — not by cutting contractor margins to the bone. Driving efficiencies is the answer, not driving prices down to unsustainable levels.
Contractors also have a key role to play in protecting themselves — by refusing to fall into the trap of “buying work” just to win tenders. It’s a slippery slope that leads to cashflow problems, under-delivery, and long-term damage.
Sometimes, the best business decision is to walk away from a job that doesn’t stack up. Because winning work at any cost… isn’t winning.
Where Augment Fits In
We can help construction businesses protect their margins, grow sustainably and make better decisions using real data — not guesswork.
From pricing strategies and cashflow forecasting to smart systems and streamlined processes, we work in partnership with a small number of clients to deliver lasting impact.
If you're ready to move beyond survival mode and start outperforming the industry norm, let's talk.