The collapse of ISG, one of the UK's largest construction firms, has sent shockwaves through the industry, potentially causing significant delays and cost overruns to billions of pounds worth of school and prison building projects across England and Wales. The firm, the sixth-largest builder in the UK, went into administration in September, resulting in the immediate redundancy of 2,200 employees and leaving numerous subcontractors unpaid. At least one subcontractor has already followed ISG into insolvency.
The timing of the collapse couldn't be worse. The government is grappling with a prison overcrowding crisis and a nationwide school building programme complicated by the ongoing reinforced autoclaved aerated concrete (RAAC) crisis. ISG held contracts for a substantial portfolio of projects, including approximately a dozen schools (valued at around £1.2 billion) and four new prisons plus refurbishment work (estimated at £300 million) for the Ministry of Justice. Analysis of government contracts by Tussell reveals ISG had approximately £2.5 billion of work in progress across 57 sites, with a further £1.7 billion in the pipeline, including £518 million in Ministry of Defence contracts.
The impact is already being felt on the ground. Bishop's Stortford High School in Hertfordshire, a secondary school with 1,250 pupils, had its new building project, over 80 per cent complete, abruptly halted. Headmaster Dale Reeve expressed his concern about the situation, noting that the school is facing delays in accessing the sports hall and car park, and that unpaid subcontractors are hindering completion. While the local authority is managing the financial aspects, the uncertainty surrounding the project's timeline remains a significant source of stress. Similar delays and difficulties are anticipated across other school and prison projects.
Industry experts draw parallels between ISG's downfall and the collapse of Carillion six years ago. Rico Wojtulewicz, head of policy and market insights at the National Federation of Builders (NFB), suggests that the industry's problematic practices of underbidding and relying on suppliers to absorb losses persist. He argues that some contractors continue to fund their businesses through late payments and loss-leading projects, mirroring the issues that ultimately contributed to Carillion's demise. The NFB highlights that while an industry code exists to promote prompt payments, it's not always adhered to, leaving subcontractors vulnerable.
The issue extends beyond individual contractors. The practice of clients, both public and private, prioritizing the cheapest bid, even if unrealistic, is a major contributing factor. Wojtulewicz points out that many contractors struggle to understand how some companies secure contracts with bids so low they are unlikely to be fulfilled profitably. This often leads to price wars that ultimately endanger the financial stability of businesses. The Most Economically Advantageous Tender (MEAT) method, intended to consider factors beyond price, has not fully addressed this issue, with price remaining a dominant factor in many tendering processes.
The consequences of contractor collapses extend far beyond immediate financial losses. The Royal Liverpool and Midland Metropolitan hospitals offer stark examples of the potential cost overruns and delays: the Royal Liverpool Hospital's project, initially budgeted at £335 million, experienced significant cost increases and was completed five years behind schedule, ultimately costing over £1 billion. The current situation involving RAAC remediation in over 200 schools will further exacerbate the challenges. The loss of a major contractor like ISG will undoubtedly increase costs and timelines for these crucial projects.
Ed Griffiths, an analyst at Barbour ABI, underscores the apparent lack of lessons learned from the Carillion collapse. Beyond the financial implications, the human cost is significant, with subcontractors facing substantial unpaid invoices, causing considerable hardship and uncertainty. The Department for Education declined to comment, while the Ministry of Justice confirmed it has contingency plans in place to mitigate the impact on its estate. ISG administrators EY stated that approximately 200 employees will be retained to help wind down the business, while the majority of the workforce faces immediate redundancy. The long-term consequences of ISG's collapse, both financial and human, will continue to unfold.
