The UK construction industry, a cornerstone of the nation’s economy, finds itself in a precarious position akin to a teetering Jenga tower. In 2025, the sector faces unprecedented challenges that threaten to topple its long-standing structure, exposing the fundamental flaws in its business model.

The Fragile Foundation

At the base of this unstable tower lies a broken economic model that has long plagued the industry. The construction sector has been operating on razor-thin margins, with companies often accepting contracts at unsustainably low profits. This race to the bottom has created a fragile foundation, where even minor disruptions can send shockwaves through the entire structure.

The collapse of major contractor ISG in late 2024 serves as a stark reminder of the industry’s vulnerability. This event, the largest failure since Carillion’s demise in 2018, has forced a moment of reckoning for the sector. Industry professionals are now openly questioning the viability of a system that encourages high-risk, low-margin work. This debate needs to be encouraged, as the ISG collapse proves we aren’t learning the lessons.

Removing the Critical Blocks - Skills Shortage

One of the most critical blocks supporting the construction Jenga tower is its workforce. However, this block is being steadily eroded by a chronic skills shortage. The Construction Industry Training Board (CITB) projects a need for an additional 251,500 workers by 2028 to meet demand. This shortage is exacerbated by an aging workforce, the impact of Brexit, and limited training opportunities.

The Construction Products Association (CPA) paints an even bleaker picture, reporting an average loss of 70,000 workers annually over the past five years. With apprenticeships falling short and a high dropout rate, the industry faces a net annual loss of 50,000 workers. This dwindling workforce threatens to destabilise the entire structure.

Unsustainable Margins

Another critical block being pulled from the tower is sustainable profit margins. Josh Griffiths, a former ISG employee, highlights the unsustainability of current practices: “2% [margin] is not sustainable; 1% contingency is not sustainable, zero weeks programme time risk allowance is not sustainable [and] heavily amended forms of contract are not sustainable”.

This sentiment is recently echoed by Cathal O’Rourke, head of the country’s largest private contractor, Laing O’Rourke, who stated that current industry margins are “not sustainable”. The pursuit of volume-driven, overly competitive practices has led to a race to the bottom, with companies accepting contracts that offer little room for error or investment in innovation.

Cost Inflation and Fixed-Price Contracts

The prevalence of fixed-price contracts in an era of rampant cost inflation adds another layer of instability to the tower. Construction costs in buildings have seen a substantial annual growth rate of 14%, primarily due to rising building materials and labour costs. This mismatch between fixed contracts and volatile costs puts immense pressure on contractors, often forcing them to absorb losses or cut corners to maintain profitability.

The Interconnected Nature of Collapse

Like a Jenga tower, the construction industry is a complex system where each element is interconnected. The removal or weakening of one block can have unpredictable and potentially destabilising effects on the entire structure. This interconnectedness is evident in how financial pressures are often transferred down the supply chain, with main contractors pushing the burden onto subcontractors.

The industry’s fragility is further exposed by its inability to adapt quickly to changing circumstances. The rigid nature of traditional contracts and business models leaves little room for flexibility or innovation, making it difficult for companies to respond to market shifts or unexpected challenges.

Rebuilding the Tower

To prevent a catastrophic collapse, the UK construction industry must urgently reassemble its Jenga tower with stronger, more sustainable blocks. This reconstruction requires a fundamental rethink of the sector’s business model and practices.

Fair and Sustainable Contracting

Industry leaders are calling for a shift towards more equitable contracting practices. Suggestions include implementing minimum margins at different project bands, with some proposing that a 5% margin is “not unreasonable”. This would provide companies with the financial stability needed to invest in innovation and manage risks effectively.

Collaborative Approaches

Build UK, a leading trade group, emphasises the need for more collaborative and sustainable ways of working. This approach aligns with recommendations dating back to the Latham report of 1994, highlighting the industry’s long-standing resistance to change. The Latham Report was followed in 1998 by Sir John Egan’s Report “Rethinking Construction” both of which were meant to be a wakeup call for the industry to transform. Now sitting in 2025, little seems to have changed. By fostering cooperation between clients, contractors, and subcontractors, the sector can create a more resilient and adaptable structure.

Investment in Skills and Technology

Addressing the skills shortage requires a multi-faceted approach. The government’s strategy of upskilling the current workforce, bolstering apprenticeships, and establishing Technical Excellence Colleges is a step in the right direction. However, the industry must also embrace technological advancements, from Building Information Modelling (BIM) to artificial intelligence-driven construction management systems, to improve efficiency and attract a new generation of workers. As things stand, the construction industry isn’t seen as a desirable career destination, despite its wide and varied career opportunities.

Sustainable and Innovative Practices

The push towards environmental sustainability is a double-edged sword which presents both challenges and opportunities for the sector. Significant government funding for renewable energy projects and infrastructure upgrades offers a chance for the industry to rebuild itself on more sustainable foundations. By embracing innovative construction methods and materials, companies can differentiate themselves and create new value propositions.

Conclusion

The UK construction industry stands at a critical juncture, much like a Jenga tower in its final, precarious moments. The collapse of major players like ISG serves as a stark warning that the current model is unsustainable. However, within this crisis lies an opportunity for transformation. By addressing the fundamental issues of low margins, skills shortages, and outdated practices, the industry can rebuild itself into a more resilient, innovative, and sustainable structure. The choice is clear: adapt and evolve, or risk watching the entire tower come crashing down.

• Paul McDevitt is managing director of McDevitt & Co and programme director of the Scottish Construction Summit.