Why should I check a construction company before appointing them?

Construction has one of the highest insolvency rates of any UK sector. Margins of 2 to 5% mean even a single disputed payment can push a firm under. If a subcontractor fails mid-project, you inherit their unfinished work, their supply chain debts, and weeks of delay. A credit check before appointing costs £29. Dealing with the fallout costs tens of thousands.

What should I check before appointing a subcontractor?

Five things: (1) Company accounts, specifically net assets and cash position. Negative net assets means they owe more than they own. (2) Director history. Serial failures are common in construction. Check if the directors have previously run companies that went insolvent. (3) Charges. Plant and equipment are often used as security for loans; heavy charges indicate financial stress. (4) Gazette notices. Any winding-up petitions or strike-off notices are immediate red flags. (5) CIS registration status, which confirms they are set up with HMRC for subcontractor payments.

How common are payment defaults in construction?

Construction has the worst payment culture of any UK sector. Average payment terms are 45 to 60 days, but actual payment often takes 90 to 120 days. The Prompt Payment Code has limited effect. Late payment cascades down the chain: main contractor pays late, so subcontractor pays their suppliers late, and the weakest company in the chain fails first. The 2011 to 2024 insolvency data shows construction firms fail at roughly twice the rate of the economy average.

What is the risk around retention money in construction?

Retention (typically 5% of contract value) is held by the main contractor until the defects liability period ends (6 to 12 months after practical completion). If the main contractor becomes insolvent before releasing retention, that money becomes an unsecured claim in the insolvency. Subcontractors rarely recover retention from an insolvent main contractor. The Construction Act does not protect retention money, and a trust fund for retention is not mandatory in the UK.

What happens if a subcontractor goes bust mid-project?

The main contractor is liable for completing the works. You must: (1) secure the site and any materials left on it, (2) find a replacement subcontractor (often at a premium because the work is half-done), (3) manage any defects in the work already completed, and (4) deal with any liens from the subcontractor supply chain who may not have been paid. Typical additional cost is 30 to 60% above the original subcontract value.

Is CIS scheme status relevant to credit checking a subcontractor?

Yes. The Construction Industry Scheme (CIS) requires main contractors to deduct tax from subcontractor payments unless the subcontractor has gross payment status. Gross payment status requires a compliance track record with HMRC. If a subcontractor lacks gross payment status, it can indicate either a new company or one that has previously fallen behind on tax obligations. It is a useful additional signal alongside financial accounts and director history.

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Why construction is high-risk

Construction companies operate on margins of 2 to 5%. Payment chains run three or four layers deep. Retentions lock up 5% of every contract for 6 to 12 months. CIS complicates cash flow further. The result: construction has one of the highest insolvency rates of any UK sector, consistently running at roughly twice the economy average.

When a single subcontractor fails, the damage does not stay contained. Main contractors inherit unfinished work, supply chain debts, and programme delays. Developers lose months. Architects lose professional credibility. Suppliers lose stock they will never be paid for.

A credit check before appointing costs £29. The cost of not checking can be tens of thousands in rectification, delay, and lost profit.

What to check before appointing

Company accounts (net assets, cash)

Negative net assets means the company owes more than it owns. Low cash with high creditors means they depend on the next payment arriving on time, every time.

Director history (serial failures)

Construction has a high rate of directors who have previously run companies into insolvency. Check every director across all their other appointments.

Charges (plant and equipment)

Construction companies often charge plant, vehicles, and equipment as loan security. Heavy charges indicate a firm borrowing against its assets to stay afloat.

Gazette notices

Winding-up petitions, compulsory strike-off notices, and administration appointments. Any of these means the company is in serious distress or already failing.

Subcontractor CIS status

Gross payment status under the Construction Industry Scheme requires a compliance record with HMRC. Lack of it signals tax issues or a very new company.

The domino effect

Construction projects are chains of dependency. When one link breaks, the whole chain is at risk.

A subcontractor fails. Their work stops. Their suppliers (who may not have been paid) refuse to deliver materials to the site. The main contractor must find a replacement at short notice, often at a 30 to 60% premium because the work is half-complete and nobody wants to inherit someone else's problems. The programme slips. Liquidated damages accrue. The developer loses income from delayed completion.

The main contractor is liable for completion regardless of which subcontractor failed. That liability does not transfer to the insolvent subcontractor's estate. You carry the cost.

Who checks, and when

Main contractor vetting subcontractor

Before appointing any subcontractor to your supply chain. The cheapest point to catch a problem. Run a check before issuing the subcontract, not after.

Developer checking building company

Before releasing stage payments. If your main contractor is showing financial stress, paying the next stage without checking could mean losing that money entirely.

Architect recommending a contractor

Your professional reputation is on the line. If you recommend a contractor to a client and they fail mid-project, the client remembers who recommended them.

Supplier extending credit to a builder

Before delivering materials on credit. Construction firms often run on 60 to 90 day terms. A lot can change in that window. Check before you ship.

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Construction companies fail more than any other sector.

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Monitor your supply chain

A subcontractor can pass a check today and deteriorate in three months. RecoupIQ monitoring (from £19.99/mo) alerts you within 24 hours of any change: gazette notices, director resignations, new charges, late filings, or status changes. Set up your supply chain watchlist and get alerts when stress signals appear. Available via the web dashboard or the Microsoft 365 Trust Check app (per-seat for project teams). RecoupIQ is a Microsoft partner.

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Related guides

Last reviewed: July 2026. General information for UK construction professionals. Not legal advice. RecoupIQ Ltd, Company No. 16947526, ICO ZC077511. Microsoft Partner.