For years, UK construction has been perceived as a risky sector, with high-profile corporate collapses reinforcing investor sentiment that risks outweigh the rewards. Today, the sector’s fundamental risk profile is undergoing a transformation and the markets have yet to catch up.

Tier one contractors including Costain, Kier, Galliford Try, Morgan Sindall and Balfour Beatty are leading the shift, building resilience through smarter contract selection, stronger risk controls and more focused strategies. Order books are growing steadily, underpinned by a pivot towards contracts with greater predictability. This is resulting in clearer revenue visibility and more sustainable growth.

Industry consolidation has left a handful of high-quality incumbents poised to capture the next wave of public and regulated infrastructure spending. Labour’s commitment to more than £113bn of capital expenditure, alongside a doubling of regulated water sector investment to over £104bn between 2025 and 2030, represents a major growth opportunity.

June’s Spending Review and subsequent 10-year Infrastructure Strategy confirmed Labour’s plans to invest, and these commitments, particularly when paired with regulated sector spending, provide tier one contractors with an enviable growth runway. Yet current valuations remain rooted in historical failures, not today’s opportunities for stable, risk-managed cash generation and shareholder value creation.

Structural shift
The failures of Carillion in 2018 and ISG last September continue to cast a shadow over construction valuations. Both were brought down by overleveraged models and a concentration on high-risk single-stage fixed-price contracts that led to substantial losses. This has resulted in markets remaining wary that even one or two mispriced contracts could destabilise an entire business.

These concerns are increasingly outdated. Contractors have moved away from chasing growth in unfamiliar sectors and are winning jobs through fixed pricing. The introduction of the government’s 2020 Construction Playbook guidance marked a pivotal moment, accelerating the move towards framework-based procurement and early contractor Involvement. These approaches support long-term collaboration, allow for better risk forecasting and facilitate repricing at key milestones through target-cost or negotiated arrangements.

With a consolidated tier one landscape and a substantial pipeline of work, contractors now have the leverage to be selective, prioritising profitable partnerships over top-line growth.

The move towards lower-risk contract types is enhancing supply chain stability, enabling long-term visibility and reducing adversarial dynamics. This is crucial, given investor concerns following ISG’s collapse and ongoing volatility at key suppliers like British Steel. While risks persist, especially for major projects requiring specific materials and tight timelines, tier one contractors are generally better insulated due to preferred supplier status, strong volumes and diversified procurement strategies, including access to international markets, which supports overall supply chain stability.

Balance sheets deleveraged
Most tier ones now operate with high net cash positions and far stronger liquidity, with many divesting non-core operations and recalibrating strategies for margin stability.

Financial and balance sheet strength are clearly significant for all businesses, but with contractors, these aspects require particular focus, given the large revenue figures and relatively low margins with which the sector operates.

Companies are increasingly diversifying their strategies to address this challenge. Most balance large infrastructure projects with higher volumes of smaller-value building works, while others, like Costain, have expanded into higher-margin consultancy services, managing complex multi-contractor projects. Despite these changes, financial flows on major infrastructure projects still involve substantial payments in both directions, making working capital and liquidity management critical.

We believe this is a moment of opportunity. Galliford Try offers strong exposure to high-growth frameworks and a balance sheet that remains underrated by markets. Costain has a compelling consultancy growth strategy and trades at a discount. Kier benefits from vertical diversification, a promising property division and a rapidly deleveraged position.

This is no longer the high-risk, low-reward sector of the past. UK construction has changed – and it’s time the market recognised it.


This article first appeared in Construction News.

Written by Max Hayes, Research Associate at Cavendish.