The impact of UK’s biggest construction company collapse since Carillion

But when the official announcement from administrators EY finally came towards the end of last week, it was still major news and represents the biggest construction company failure since the demise of behemoth Carillion back in 2018.

Restructuring experts from management consultancy EY-Parthenon were appointed as joint administrators to eight of ISG’s UK trading businesses on Friday 20 September, resulting in the immediate loss of 2,200 jobs.

A skeleton staff of 200 remain to assist the administrators in winding down the business.

ISG chief executive Zoe Price (Image: ISG)

ISG was a major player both the construction new buildings as well as in the fit-out market, operating across sectors including central and local government, education, financial services, health and leisure, technology, media and communications (including data centres) and retail and hospitality among others.

Its last published accounts, for the 2022 financial year, showed that turnover was just under £2.2 billion (US$2.9 billion). It made a razor-thin pre-tax profit of £11.5 million (US$15.4 million) for the year.

Even at that time, the then-CEO Matt Blowers pointed to challenges, with political and economic issues in the UK, including high inflation, rising interest rates resulting in some projects being put on hold or scaled back.

In fact, according to an email sent last week by Blowers’ successor as chief executive, Zoe Price, it was legacy issues relating to large, loss-making contracts secured between 2018 and 2020 that saddled the business with liquidity problems that ultimately it was unable to trade its way out of.

ISG’s US-based owner, investment company Cathexis Holdings, had been trying to sell off ISG over the course of several months. But the would-be purchaser was unable to find the funds to recapitalise the business, according to Price’s email.

Attempts to sell off individual ISG business units also proved fruitless.

Impact of ISG’s demise

ISG had a pipeline of work totalling £4.3 billion (US$5.8 billion), of which around £2.5 billion (US$3.3 billion) were projects already on site, and another £1.7 billion worth were projects that had been awarded but had not yet started, according to construction intelligence provider Glenigan.

Glenigan identified 33 awarded contracts, 57 already on site and three due for imminent completion that are now “up in the air”.

ISG has worked with the Ministry of Justice for 20 years and in 2023 was appointed to its 5-year, £2.5bn construction services framework (Image: ISG)

Those included a £200 million deal to build a Fujifilm Diosynth Biotechnologies Facility in Billingham, Cleveland, as well as a £200 million (US$267.9 million) project to build phase two of the Slough Data Centre Campus in Berkshire.

Meanwhile, a £158 million (US$211.6 million) project to build an Institute of Neurology for University College London (UCL) which topped out last year and was due for completion in 2024 is also affected, as is a £150 million (US$200.9 million) data centre project for Vantage Data Centres  in London’s Ealing.

The company had also been appointed main contractor on a £300 million (US$401.8 million) project to build a car battery plant for Britishvolt in Blyth, Northumberland back in late 2020. But ISG was forced to pause work on the prestigious scheme in 2022 and Britishvolt entered administration the following year amid cashflow problems, although the contractor said it had not lost any money on the scheme.

Around a third of ISG’s total pipeline is public sector work, while industrial, commercial, and private housing projects account for £2.8 billion of the total (US$3.7 billion).

It was also on a total of 19 construction frameworks with a combined value of £104 billion (US$139.3 billion).

Glenigan’s economic director Allan Wilen said, “ISG’s demise is set to dampen overall industry workload in the near term as clients look for contractors to complete projects currently on site and as recently awarded projects are re-tendered.

“Its subcontractors and suppliers will be under increased financial pressure and contractors nationwide will need to review and work with their own supply chain to minimize financial stress and avoid any additional loss of industry capacity.”

Knock-on effect for creditors

The latest financial report available for ISG, for the 2022 financial year, showed that it owed a total of £281.7 million (US$377.3 million) at that time in “trade payables”, including retentions, to suppliers. Once contract accruals and money owed for taxation and social security, as well as VAT, were taken into account, the total amount in “trade and other payables” that it owed rose to £710.3 million (US$951.3 million).

The development means uncertainty for subcontractors and other suppliers within ISG’s supply chain.

A digital render of how UCL’s centre of neurosicence in London, which was being built by ISG, will look once complete (Image: UCL)

David Crosthwaite, chief economist at the Building Cost Information Service predicted that more construction businesses would fail as a result of ISG’s collapse.

“[It] is likely to have serious knock-on effects for the sector. This is the largest business failure since Carillion and the ramifications will no doubt be serious,” he said.

“Cashflow is critical for construction businesses and as soon as there are negative impacts on cashflow then it doesn’t take much for those businesses to fail. So, I suspect that insolvency numbers will rise as a result of the ISG failure.”

Meanwhile, the Construction Leadership Council (CLC), which works in partnership with government to provide a voice for the construction sector, said it had started to collate guidance for those impacted by ISG’s administration.

“We would advise everyone in the industry to ensure that they are managing any impact on their businesses within the terms of existing contractors, ensure that where possible payments are made promptly to suppliers and to await further information.

“If companies are in particular financial distress, we would encourage them to contact their relevant industry body,” it said.

Fallout for employees

Build UK, a body representing the UK construction industry, said it was working to secure other roles for the more than 130 apprentices, graduates and trainees employed by ISG who have now lost their jobs.

It has called on any businesses that may be able to help to email [email protected].

Build UK’s chief executive Suzannah Nichol told the BBC’s Today programme that the news of ISG’s demise was “devastating” for the industry.

She told the programme, “Construction remains undervalued, and people underestimate the cost of construction.

“While 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.”

Other employees at the company expressed shock at the company’s demised but for skilled and experienced workers, their prospects for re-employment look hopeful.

The most recent Construction Skills Network report looking at the requirements for workers in the sector in the UK, published in May this year, put the number of extra workers required to meet UK construction output by 2028 at 251,500.