ISG collapse 'devastating' for construction industry

The collapse of construction giant ISG is "devastating" for the sector and could lead to other firms going under, the boss of an industry trade body has said.

The chief executive of Build UK, Suzannah Nichol, told the BBC’s Today programme that many smaller firms in the supply chain would not now receive money, putting their future at risk.

Workers and suppliers have told the BBC they are "shocked" and "demoralised" by the news of ISG's collapse.

The company, which holds more than £1bn worth of government contracts, fell into administration last week and 2,200 workers were made redundant with immediate effect.

Liam Byrne, chair of the Business Committee, said he was "deeply concerned" at what had happened.

ISG, owned by the US firm Cathexis, is the sixth largest construction firm in the UK by turnover, according to the Construction Index, with revenues of about £2.2bn.

In the past it has built the velodrome for the 2012 London Olympics.

The company had been struggling financially for some months but attempts to secure a rescue deal failed.

'I'm gutted'

Neil Hallsworth from Nottingham has been on ISG’s books as a project manager for more than 15 years.

Although he is confident he will find a new role elsewhere, he says he is “gutted” and feels very “raw” after learning he is among those to lose his job.

He says there were rumours on Thursday last week that ISG was in trouble, but it wasn't until 4pm on Friday that "we were told, no jobs, no money".

“It’s absolutely demoralising. I feel extremely let down," he says.

“Some of the contractors are owed a fortune.”

Paul Margan, from Princes Risborough in Buckinghamshire, runs a small family business that has just completed an order valued at more than £20,000 for ISG, but he is now worried his firm will not be paid.

He said he was "shocked" at the news of ISG's administration and finds the situation "really disappointing and demoralising".

He thinks the government should step in to tighten up the rules on when firms can continue to trade.

Mr Margan says his firm will be OK, but thinks there is "no doubt a lot of companies will go under".

Another supplier to ISG, who wanted to remain anonymous, told the BBC they were owed hundreds of thousands of pounds and the collapse "would really hurt us".

"I know of other contractors who are owed over £1m and I suspect some of them will go to the wall," they said.

The supplier said the shockwaves would be felt throughout the industry, but added that "given the big shortages in labour and skills in the sector, I'd expect most [ISG] employees to be OK".

Construction 'undervalued'

In an email to staff last week, ISG chief executive Zoe Price said the current situation had arisen due to "legacy issues" relating to "large loss-making contracts" secured between 2018 and 2020.

According to data analysts Barbour ABI, ISG was involved in 69 government projects including work on prison refurbishment for the Ministry of Justice (MoJ).

It was working on 22 projects for the MoJ, including a £300m contract to extend Grendon Springhill 2 prison and a £155m deal to expand three prison sites.

An MoJ spokesperson said the ministry had "robust contingency plans in place" to mitigate the impact of ISG's collapse.

"We will work with administrators and will find alternative ways to deliver these projects where necessary.”

The company was also involved in 16 projects each for both the Department for Education and the Department for Work and Pensions, according to Barbour ABI.

“The last time we saw a Tier 1 main contractor go under (Carillion in 2018), schemes such as the Royal Liverpool and Midland Metropolitan Hospitals were delayed by up to seven years and the extra cost of delays needs to be factored in,” said Barbour ABI analyst, Ed Grifiths.

ISG's collapse is the most high-profile in the UK's construction sector since Carillion fell into adminstration in 2018.

Industry watchers say its demise is symptomatic of problems across the industry, with profit margins running at about 2%.

Speaking to the Today programme, Ms Nichol said: "Construction remains undervalued, and people underestimate the cost of construction.

"Whilst there have been changes since Carillion six years ago, there clearly has not been enough change.

"We know construction runs on very thin margins. You only need one project to go wrong and get delayed and you start to have cashflow issues," she added.

"ISG had two major contracts which they started, mobilised and then were stopped by the client and that happens time and time again in construction."

Liam Byrne voiced his concern at the news of ISG's collapse, which he said could now "imperil thousands of jobs".

"It’s why we’ve got to transform the quality of UK accounting so it once again provides the early warning system that investors, workers and suppliers deserve."

Additional reporting by James Kelly