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Key contractor collapse: Next steps for UK developers

Main contractor collapse – Guidance note for developers.

12/06/2026

When a major contractor enters administration, every stakeholder is exposed. For developers, swift and decisive action is essential to protect investments.

The collapse of a construction firm can be devastating for the sector. As well as redundancies, large debts can be owed to suppliers, many of whom receive little or nothing back from the liquidation. Each contractor insolvency case is different, yet there are commonalities in the actions developers should take.

How vulnerable is the UK construction sector?

Despite current conditions — with large amounts of private and government investment in construction — contractor collapse is a very real threat.

Month after month, UK construction companies routinely experience the highest number of insolvencies of all UK industrial sectors. The industry accounted for 16% of all insolvencies in England and Wales in March 2026, the most recent figure at the time of writing. This represents about 6-7% of gross value added (GVA). In April 2026, construction insolvencies in Scotland accounted for 18% of all insolvencies in the country. The Insolvency Service does not publish sector-specific insolvency figures for Northern Ireland.

Driving factors impacting financial stability

Construction costs have increased in recent years, with labour shortages emerging as a key driver. In the UK, skills shortages have overtaken material costs as the sector's primary challenge, and as demand for available talent intensifies, wage costs have risen considerably.

Surging inflation, fuelled by supply chain disruptions, energy and materials price rises, geopolitical tensions, and the ongoing effects of both Brexit and the COVID-19 pandemic, has driven construction costs higher. 

Increased borrowing costs aimed at tackling inflation have also affected construction companies. 

Fixed price contracts

Also known as lump-sum contracts, fixed-price contracts have been a popular type of building and engineering agreement in which the contractor agrees to a fixed price for the entire project. While this type of contract provides cost certainty for the developer and can work well for projects with a well-defined scope, it also presents a financial risk to contractors, as it requires accurate cost estimation. Changes in labour and material costs after the contract is signed don’t affect the developer but can significantly impact the contractor's solvency.

How leading construction companies are saving money by choosing the right surety products 

To protect themselves against contractor insolvency, developers should require their appointed contractor(s) to provide a performance bond. This is a protection for the unwanted event of an insolvency. Subject to the bond wording, it will provide funds, typically up to 10% of the contract, to help pay for the recovery of the project. Contact a reputable construction insurance broker for expert advice on choosing the optimum surety solution.

The importance of efficient and effective project recovery

If a project is affected by contractor insolvency, the default position is to recover the project. Developers should act quickly if a contractor fails. Contacting your construction insurance broker and provider should be a vital part of your strategy. 

The checklist is detailed and varies from company to company. For guidance on next steps, review the following. Your construction insurance broker can provide further advice on policy-related matters and, where needed, engage insurers and risk engineers.

Site security: Focus on the small print

Before terminating a contract and mothballing the site, review the contract to establish whether the contractor is legally insolvent. Most insurance contracts include clauses that automatically cover cessation of work, but details vary, including reporting requirements. 

Once the contract is terminated, secure the site immediately. Conduct an audit of plant, equipment, goods, and materials, and put procedures in place to prevent unauthorised removals. Arrange a new security contract and set up surveillance measures, such as CCTV. A weekly monitoring system will help ensure the site remains secure and free of fire, safety, or water-damage issues. 

Materials storage: Be meticulous

It’s time to work out who owns the goods. Is it a supplier that’s not been paid? A subcontractor storing goods off-site? Or a contractor storing goods on-site?

Ownership of unfixed goods off-site can be complex. Construction contracts aren’t governed by the same legislation as sale contracts, so the intended transfer of ownership upon payment might not be enough. 

Building contract: Get the facts right

Scrutinise contractual documents. The contract should set out provisions for termination in the event of the main contractor's insolvency, whether under a Joint Contracts Tribunal (JCT), New Engineering Contract (NEC), or a bespoke agreement. The developer must adhere to these provisions to terminate the contract. This is imperative if the developer plans to hire a new contractor to complete the work or to complete the project themselves.

Supply chain and subcontractors: Consider legal advice

The status of key subcontractors and suppliers depends on whether the main contractor's employment is terminated. If the main contractor continues to complete the project despite insolvency, key subcontractors will proceed as usual.

Seek legal advice if the employer intends to make direct payments to subcontractors, as this might conflict with the principle that assets should be shared equally among an insolvent company's creditors.

Project insurance: Work with a construction insurance broker

Assess how the site and any incomplete works are insured. When a contractor is required to insure the works and site, this obligation might cease or become non-compliant upon insolvency. 

Typically, the contractor holds contractor’s all-risk (CAR), public liability, employer’s liability, and professional indemnity (if providing design) insurance. Developers will need to consider which of these covers need to be put in place immediately. Additionally, insurance for construction plant and equipment and/or site accommodation should be considered. 

Work with your construction insurance broker to determine the strategy needed to protect the project's future. 

The rise of latent defects insurance (LDI) 

LDI — also known as inherent defects insurance (IDI) — protects the property owner (and the developer, if agreed upon by insurers) against the costs of repairing or replacing insured property that suffers physical loss or damage due to defective work, materials, or design that becomes apparent after practical completion of the works.

In the UK, the defects liability period typically lasts for 10 or 12 years. If a contractor goes into administration during this period, the developer no longer has an open route to claim for rectification of the issue. The insolvency of a contractor does not affect coverage under an LDI policy; it will still respond to property damage caused by an insured event, making this insurance an important consideration to guard against this future risk. 

Check out our fact sheet, Refurbishing existing buildings: Increased interest for latent defects insurance (LDI), for more details on how LDI can shield your business from contractor insolvency.

Building Safety Act 2022 (BSA) information: 

BSA measures ensure that residential buildings, especially high-risk structures, are designed, constructed, and maintained to the highest safety standards. Under the BSA, the principal contractor is obliged to provide the client with the necessary information detailing the arrangements made to fulfil their duties. If this contractor becomes insolvent and is replaced, the new principal contractor must review the arrangements established by their predecessor within 28 days of their appointment.

How a construction insurance broker can help, following contractor insolvency

Replacement insurance for contract works 

Contractors typically assume responsibility for arranging construction insurance for the duration of a project. However, if a replacement contractor is found after insolvency, their insurance policies generally exclude coverage for losses related to (or resulting from) the works completed by the previous contractor. 

A construction insurance broker can arrange replacement insurance that covers both the original works and the replacement contractor’s works, extending through practical completion and beyond.

Third-party liability insurance

Without a contractor responsible for the development, the employer assumes legal liability for the vacant site and must consider public liability risks. Vacant sites are vulnerable to intruders who might be intent on theft, arson, or exploration. If an intruder is injured, even if they have criminal intent, the site owner could be held liable for damages. Developers must inform their construction insurance broker of the situation to ensure that liability risks are adequately covered while they organise a new contractor.  

Project delays

If included in a policy, delay in start-up (DSU) or advance loss-of-revenue coverage is commonly limited to events involving material damage. Delays resulting from a main contractor going into administration will not trigger this coverage.

Your next move: Choosing a construction insurance broker

Preparation for contractor insolvency is essential. You need expert advice on how to protect your company from contractor collapse and to discuss how an owner controlled insurance program (OCIP) could be a suitable option for project owners and developers.

An experienced construction insurance broker can enable and facilitate differing stakeholders in enhancing collaboration. 

Look for a company that can demonstrate industry expertise and long-term risk management relationships to provide construction firms with the best-value coverage, with optimal terms and conditions. 

Your Marsh Risk construction contact

Craig Charles

Managing Director, Owners & Developers, UK Construction, Infrastructure & Surety Practice

+44 (20) 73575719