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Cash-strapped building companies are poised for a surge in insolvencies this year as the construction industry continues to fight to overcome its worst downturn on record.
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As companies gear up for the resumption of halted projects and the prospect of new work, insolvency experts are warning that squeezed working capital will lead to a spate of business failures.

"The greatest danger to construction companies is that they will fail even as they start to experience growth, because they find that the extra working capital needed is not available or that they have left it so late to look for additional funding that they are too far back in the queue," said Nick Hood, London partner of Begbies Traynor, a restructuring specialist.

The number of building companies experiencing significant or critical financial problems has risen 30 per cent since the start of the year, according to data from Begbies Traynor.

The concerns come as the number of insolvencies in construction, and also broadly across most sectors, has been falling. Administrations in the UK were down 46 per cent in the first quarter of 2010, compared with the same period last year.

Insolvencies in the construction sector fell 4 per cent in the first quarter of 2010 from the last quarter of 2009, according to figures from PwC. However, in the past 12 months, the number has risen 10 per cent on the previous year.

It is the second half of this year that insolvency specialists believe could lead to a pick-up in the number of companies collapsing.

"It will be like being stuck on a desert island, seeing a ship on the horizon and thinking 'we are saved'. But then it sails the other way," Mr Fleming said.

There is also concern that it may become harder for companies to access "time to pay" arrangements, a government programme that allows them to reschedule tax payments, of which the construction industry is believed to be the heaviest user.

The British building industry has endured its worst slump in activity since records began in 1955, contracting 11 per cent in 2009 and expected to fall again this year.

The Federation of Master Builders warned that the slowdown in public spending would add to the risk of insolvencies, particularly because many companies had become more dependent on state-backed construction work as private projects receded.

The FMB also said that a lot of smaller building companies - many of which are family run - "would either go out of business or simply give up as things got too tough".