NMCN headquarters with United Kingdom Financial Alert graphic

After 75 years in operation, British construction business NMCN collapsed on October 6, 2021, following a failure to secure refinancing. The contractor went into administration — a situation similar to filing for Chapter 11 bankruptcy in the US.

$83 million in total outstanding debt is owed to various contractors and suppliers, with almost 150 businesses forced to swallow losses of over $137,000.

After $59 million in losses were uncovered in their 2020 accounts, plans for a $33 million refinancing lifeline by Svella collapsed, and the company was forced to liquidate most of its subsidiary businesses to pay back its secured creditors.

With an annual revenue of roughly $557 million turnover, the company was divided into several different business sectors, including buildings, highways, telecoms, asset security, and power/industrial construction.

Most of these subsidiaries have been snapped up by competitors for pence on the pound, saving over 1,600 jobs in the process. But the loss-laden construction business failed to secure a buyer, resulting in the dismissal of roughly 100 staff.

Secured creditors Svella and Reflex Bridging Limited are expected to be reimbursed their invested $24.8 million in full, but unsecured creditors are unfortunately facing a dire situation.

Construction industry struggles are a global issue

The unsettling collapse of UK-based NMCN highlights that failures in the construction industry are indeed a global problem.

While US professionals may be used to hearing of bankruptcies such as that of Texas-based TRS Construction, who recently filed Chapter 7 bankruptcy with over $1 million in liabilities and just $13,000 in assets, it’s clear that cash-flow and payment struggles are hardly limited by international borders.

In the US, construction businesses can expect to be paid, on average, within 83 days. A survey of British industry professionals by UK construction media outlet Construction News suggests the issues plaguing the industry are largely similar, with 72% of UK businesses waiting 40 days or more for payment.

In Europe, 58% of construction companies report accepting payment terms longer than they are comfortable with. The same report estimates that late payments have hindered the creation of an incredible 6.5 million obs across Europe in 2017 alone.

This lengthy waiting period can spell trouble for a company’s cash flow, and can increase the risk of business failure.

Dive deep: 2021 Construction Cash Flow & Payment Report

Even the largest construction firms can fail

NMCN isn’t the first British construction giant to fail. In 2018, the UK’s second-largest contractor Carillion was forced into liquidation with more than $1.86 billion in debt. At the time, Carillion’s downfall put over 19,000 jobs at risk and left a staggering wake of creditors behind.

Despite allegations of shady business practices, Carillion’s largest customer was the British government, and was very close to being bailed out for being “too big to fail.” Ultimately, the bail-out fell through, the company was forced to liquidate, and many began to question the government’s frequent reliance on private enterprise to deliver public projects.

Over the years, the UK government has implemented a number of initiatives to bolster the British construction industry, one of which being the 2008 Prompt Payment Code. The code aims to improve payment culture in the construction industry by introducing a set of standards.

Broadly, the code establishes that signatories will pay their suppliers on time, provide clear guidance, and encourage good practice.

Explore United States Prompt Payment Laws in The US Prompt Payment Act: A Guide for Construction

Companies that fail to abide by the standards established in the code are removed from the list of signatories, and can even be publicly shamed by the government.

Despite these efforts, many in the industry feel that there has been little improvement when it comes to payment, and some have called for even stricter initiatives and penalties to be enacted.

With four out of five US construction businesses failing within the first 15 years of operating, industry professionals are clearly aware of the struggles they face.

NMCN’s collapse has left hundreds of businesses across the UK with sizable losses and little chance of repayment. With cash flow already strained by slow payments endemic to the global industry, NMCN’s creditors face increased financial pressure, which is likely to trickle down to their subcontractors and other vendors as well.

Minimizing the impacts of late payments on cash-flow may reduce the risk of financial trouble, but efforts across the industry are mixed.

Although Levelset’s 2021 Construction Cash Flow & Payment Report suggests that 83% of surveyed businesses now have the ability to accept electronic payments, a similar UK report found that just 25% of British professionals have digitized or are planning to digitize their payment processes.

NMCN, like Carillion before it, shows that professionals should be wary of putting too much faith in large contractors, even if they appear “too big to fail.” In most cases, they simply are not.

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