Construction industry battling lack of appetite for risk, long payment terms and skills shortages

Wafer-thin margins, onerous regulation, late payment, skills shortages, rising employment costs and an increasingly defensive approach to risk are all holding back growth according to construction industry leaders.

Representatives from across the construction sector came together to discuss the industry’s biggest challenges at a special round table hosted by HCR Law and Azets at The Telegraph Hotel in Coventry ahead of the government’s upcoming budget next month.

Their discussion painted a picture of an industry in demand, but struggling to convert opportunity into sustainable growth because of structural issues that run through procurement, payment, risk allocation, insurance, training and planning.

The government wants to deliver £718 billion of infrastructure pipeline projects over the next ten years. It’s target of 1.5 million new homes during this Parliament by 2029 and is funding the training of more construction workers, but the sector currently doesn’t have the people, cash flow, confidence or procurement culture in place now to meet that target.

Recent data also underlines the challenge: the Office for National Statistics reported that construction output in Great Britain fell by 0.5% in the three months to July 2026, with new work, repair and maintenance all declining. The S&P Global UK Construction PMI index was 44.3 in August 2026 signalling the sector is in decline as below 50.

Pressure from every direction

Paul Fenner “described the sector remains essential to the economy but faces a combination of significant opportunity, but also operating under intense pressure”. Construction employs over three million people (10% of the total workforce in the UK) and supports a large network of smaller companies, yet many work on margins that leave little room for shocks. Rising material prices, higher labour costs, changes to National Insurance, increases in the minimum wage, higher compliance expectations and more demanding contractual requirements all add to the strain.

For specialist subcontractors in particular, the burden is acute. Several contributors said subcontractors are often expected to absorb cost increases that were not foreseeable when contracts were originally priced, while still being asked to deliver to tight programme requirements and carry risk that is out of all proportion to the value of their package.

In some cases, work procured years earlier is now being delivered in a very different cost environment, but with little flexibility from main contractors or clients.

The issue of insurance was repeatedly raised. Many businesses are asked to carry levels of cover that may bear little relationship to the value of their work. A subcontractor delivering a package worth hundreds of thousands of pounds can be asked to hold cover running into millions.

The result is smaller businesses facing higher costs and greater administrative complexity, but denied the opportunity to discuss or challenge the requirement.

Insurance specialists around the table acknowledged the rise in premiums but said that was after a period of unsustainably low rates. Claims costs had increased while premium levels had not always provided enough capacity to meet liabilities.

They advised better data and closer engagement between client, broker and insurer, including face-to-face discussions which could produce a more realistic assessment of business risk. Decisions based on spreadsheets rather than a proper understanding of the business, its record and its approach to safety will always feel more remote.

Late payment and cash-flow remain critical barriers

Payment practices are an ongoing challenge. Delegates contrasted the construction sector with other industries, including manufacturing and renewables, where upfront payments, staged funding or more collaborative commercial models are more common.

By contrast, construction businesses still find themselves waiting until work is complete, or close to complete, before they are properly paid.

That’s fine for companies with deep pockets, but it’s a significant barrier for SMEs. Smaller companies may have the skills, equipment and appetite to take on work, but not the cash reserves to fund labour, materials and overheads for extended periods.

A worrying issue is that payment terms, which improved during Covid have drifted back towards much longer cycles. Delegates described 120 to 180-day payment practices as unsustainable in a sector where insolvencies can have a domino effect throughout the supply chain.

When a contractor collapses, subcontractors can be left exposed, cash is trapped, projects stall and confidence drains from the market. High-profile failures such as ISGand Buckingham Group continue to shape industry thinking, but the same headlines.

What’s the solution? One is being bolder about refusing work on terms that are commercially unsustainable. Businesses often avoid difficult conversations about payment because they fear damaging client relationships, but delegates argued that non-payment has already undermined the basis of that relationship.

This is where trade bodies become more relevant, representing their industry as a whole rather than leaving the battle to individual companies – although sometimes that means representing the bigger companies as smaller SMEs may not be members, leaving their interests under-represented.

Risk is being pushed down the chain

The allocation of risk was a central concern. Delegates said many contracts pass risk down the supply chain rather than placing it with the party best able to manage it.

Requirements can be presented as standard terms, leaving contractors and subcontractors to price risks they may not fully understand, cannot control or should not reasonably be expected to carry.

That can lead to disputes and financial distress.

HCR Law Partner, Michael Hiscock, said: “Those involved need to ask themselves who should carry the risk, and should there even be a risk at all in the contract. Often the response will be: ‘Because that’s our standard position’. In that case I would suggest asking whether the right person is pricing the right risk for that project.”

There was broad support for a more open approach in which risk is identified, understood and priced properly. Some contributors pointed to open-book arrangements, shared-risk models and industry risk registers as ways to create more transparent commercial discussions.

Skills shortages threaten delivery

However, it’s the critical skills shortage which is one of the biggest threats to the sector. Delegates pointed to the gap between the government’s housing and infrastructure ambitions and the number of trained workers available to carry them out.

Government has announced funding to help train up to 60,000 more skilled construction workers by 2029, while the Construction Industry Training Board’s 2026–2030 outlook says the UK will need an average of 41,200 extra construction workers each year to meet expected demand.

Last year, there were 33,000 construction apprenticeship schemes, but the apprenticeship pipeline remains a concern. Even where young people start construction-related courses, too few stay the course.

Here the conundrum is not simply how to attract people into construction, but how to convert interest into long-term careers.

Retention is equally important. Brexit, an ageing workforce, uncertainty in the pipeline and the cyclical nature of construction workloads all contribute to recruitment difficulties. Smaller firms are reluctant to invest in training when order books are short and costs are rising. Yet without that investment, the sector risks being unable to deliver not only new homes, but also infrastructure, retrofit, renewable energy and building safety work.

The Building Safety Act has added a further dimension to the skills question. The roundtable recognised that higher standards of competence and accountability are necessary, particularly where poor practice can have serious consequences for end users. However, compliance adds to costs and administration.

The answer, delegates suggested, lies in better procurement and verification of competence.

Procurement culture needs reform

Responsible procurement connects many of the sector’s problems. Delegates said tender documents may say they balance quality and price, but in practice many decisions still come down to cost, which penalises businesses that price work realistically.

There was also frustration with the burden of pre-qualification questionnaires and administrative requirements, particularly where the same information is requested repeatedly across different tenders. For SMEs, bid processes can consume substantial time and resource with no guarantee of success. Some contributors argued that, if clients expect suppliers to provide detailed intellectual input and technical solutions at tender stage, there should be greater recognition of that value.

Public sector procurement, which is responsible for a significant proportion of infrastructure work, attracted scrutiny. As such government and public bodies are well placed to influence market behaviour. If public clients led by example on fair payment, proportionate risk allocation, competence checks and realistic tender evaluation, participants argued, that could help reset expectations across the wider market.

Planning and regional delivery

Planning was another recurring barrier. The pace of decision-making remains slow and can delay otherwise viable housing, commercial and regeneration schemes. The shift of more power towards combined authorities and regional decision-making could create opportunities, but it may also bring different local priorities and further complexity unless the system is properly resourced.

Participants suggested that planning in principle could help de-risk more schemes if applied more widely and efficiently. Earlier certainty would give developers, funders, contractors and subcontractors greater confidence in future pipeline, which in turn could support investment in people, equipment and training.

Technology offers opportunity, but investment is difficult

Despite the challenges, delegates see opportunities in deploying AI to better manage data and improve planning. These tools could help businesses increase productivity, manage risk, assess procurement decisions, improve negotiation and strengthen evidence around competence and pricing.

AI can improve the bidding and negotiation process, focussing on value and not simply price. The tender process itself, can be very expensive and time consuming, so anything that improves successful conversion rates, will be welcome.

AI is now being used in the sector in a number of ways : increased use of robotisation at construction sites, used of drones for health and safety checks, 3D printing, resource allocation optimisation, logistical planning, clash detection and predictive maintenance, all help to improve productivity and margins.

While investment remains difficult for companies operating on tight margins, businesses know they need to modernise, but survival mode leaves little headroom for innovation. There was concern that overseas or better-capitalised competitors could move faster if UK firms are unable to invest.

For a sector being asked to build more homes, deliver infrastructure, improve safety standards and support economic growth, the challenge is clear. To meet the ambitions placed upon it, construction must stop treating pressure as something to be passed down the chain and start treating resilience as something to be built collectively.

The opportunities are there for the well-prepared.

Paul Fenner, a partner at Azets, said: “We were thrilled with the response, the openness and honesty of everyone in the room. It meant that we could really get to the heart of some of the big issues, challenges and opportunities the sector faces.

Construction has a huge role to play when it comes to the economic growth in this country, but it’s only by identifying these issues and looking to tackle them head on that we can really start to see the sector thrive.

Now more than ever, staying competitive in the sector, demands that businesses remain agile and proactive in adapting to the changes in trends in order to be more resilient and future proof”

HCR Law partner, Michael Hiscock, added: “I’ve been a construction lawyer for nearly 25 years. Some of the issues the sector faces are legal, some are financial, but all of them are practical difficulties facing the sector.

“There are various changes in law coming through over the next two or three years that are going to fundamentally change the way we enter into agreements with each other. We all want to get the sector growing again.”