Artificial Intelligence for Predicting Insolvency in the Construction Industry—A Systematic Review and Empirical Feature Derivation

The construction sector is particularly prone to financial instability, with insolvencies occurring more frequently among micro- and small-scale firms. The current study explores the application of artificial intelligence (AI) and machine learning (ML) models for predicting insolvency within this sector. The research combined a structured literature review with empirical analysis of construction sector-level insolvency data spanning the recent decade. A critical review of studies highlighted a clear shift from traditional statistical methods to AI/ML-driven approaches, with ensemble learning, neural networks, and hybrid learning models demonstrating superior predictive accuracy and robustness. While current predictive models mostly rely on financial ratio-based inputs, this research complements this foundation by introducing additional sector-specific variables. Empirical analysis reveals persistent patterns of distress, with micro- and small-sized construction businesses accounting for approximately 92% to 96% of insolvency cases each year in the Australian construction sector. Key risk signals such as firm size, cash flow risks, governance breaches and capital adequacy issues were translated into practical features that may enhance the predictive sensitivity of the existing models. The study also emphasises the need for digital self-assessment tools to support micro- and small-scale contractors in evaluating their financial health. By transforming predictive insights into accessible, real-time evaluations, such tools can facilitate early interventions and reduce the risk of insolvency among vulnerable construction firms. The current study combines insights from the review of AI/ML insolvency prediction models with sector-specific feature derivation, potentially providing a foundation for future research and practical adaptation in the construction context.