Extent of upheaval caused by ISG failure becoming clear

On Friday 20 September 2024, EY-Parthenon’s turnaround and restructuring strategy team was appointed as administrator to eight UK trading entities of ISG: ISG Central Services, ISG Interior Services Group UK, ISG Fit Out, ISG Engineering Services, ISG UK Retail, ISG Retail, ISG Construction and ISG Jackson.

It has been reported that the prison sector was particularly effected by the sudden collapse of one of the UK’s largest contractors.

ISG’s governmental contracts from the Ministry of Justice (MoJ) accounted for £1.65bn of the contractor’s workload as of 26 June. This figure was disclosed through Freedom of Information requests by NCE sister title Construction News. The MoJ had continued to commission work to ISG, including a notable £300M contract for HMP Grendon in January, despite ongoing rumours about the company's financial stability.

Further, the MoJ had engaged ISG had included the firm as one of four partners in a £1bn prison-building “alliance”. The other partners in this alliance are Kier, Laing O’Rourke, and Wates. Plans are reportedly underway to ask one of these contractors to step in and take over ISG's responsibilities.

Further investigation has revealed that ISG was holding at least £1.84bn in government contracts at the time of its failure.

The Department for Education (DfE) also had significant ties with ISG, holding £190.5M in contracts as of June. These include multimillion-pound projects under a four-year £7bn DfE framework awarded in 2022. Of the total DfE contracts, £101.3M was designated for projects in the main construction phase, £80.5M in the defects liability period and £8.7M in the preconstruction phase. Efforts are currently being made by the DfE to support affected schools and to seek all possible forms of redress to manage costs.

Other governmental bodies such as the Department for Health and Social Care, Defence Infrastructure Organisation and the Welsh Government reported no ongoing contracts with ISG.

A government spokesperson said: “We have implemented our detailed contingency plans and affected departments are working to ensure sites are safe and secure.”

Additionally, the MoJ confirmed that arrangements are being made to ensure ongoing projects are completed. “We have robust contingency plans in place to mitigate the impact on our prison and court estate of ISG going into administration,” an MoJ spokesperson stated.

Major private contracts

While initial analyses highlighted the scale of the problem, the aftermath has proven far more extensive than anticipated. It has become evident that the repercussions will affect the construction industry for months to come.

According to Glenigan, a leading construction intelligence provider, public sector work comprises only a third of ISG's project portfolio, whereas industrial, commercial, and private housing projects account for over £2.8bn. Currently, ISG has projects totalling over £2.5bn on-site, with additional awarded contracts amounting to £1.7bn.

Glenigan found that ISG’s collapse leaves 33 awarded contracts, 57 in-progress projects and three near completion in a state of uncertainty. Notable projects impacted include:

• Fujifilm Diosynth Biotechnologies Facility in Billingham, Cleveland - £200M
• Slough Data Centre Campus Phase 2, Berkshire - £200M
• Institute of Neurology for UCL, London - £158M
• Data Centre for Vantage Data Centers, Ealing - £150M
• Data Centre for Colt Data Centre Services, Hillingdon - £150M

Additionally, ISG was engaged in 19 construction frameworks with a total value exceeding £104bn.

Local authorities

Some local authorities have also been impacted by the collapse of ISG, notably Blaenau Gwent County Borough Council (BGCBC), which has confirmed that two significant projects have been adversely affected.

The High Value Engineering Centre (HiVE) in Ebbw Vale and a new Welsh Medium seedling school in Tredegar have both had their contracts terminated due to the company’s sudden administration.

A spokesperson for BGCBC explained: “Both contracts have been terminated and the sites are in the ownership of the council and made secure.” They added that these unforeseen circumstances, which were beyond their control, would likely impact the expected completion dates of these projects. The council is currently coordinating with the Welsh Government and other key partners to ensure the continuation of these projects.

The HiVE facility was under development at the site of the former Monwel Hankinson factory in Ebbw Vale, with construction having commenced a year ago. The 2,000m² facility was intended to offer state-of-the-art training and education in fields such as robotics, advanced materials, manufacturing, and digital and enabling technologies. This initiative, in partnership with Coleg Gwent and various industry partners, had secured over £12M from the Welsh Government’s Tech Valleys programme and the UK Government’s Levelling Up Fund. The aim was to repurpose the redundant factory building to create the HiVE facility, which was scheduled to welcome students by autumn 2024.

Coleg Gwent Vice Principal Nicola Gamlin had previously articulated the importance of this project: “As the demand for STEM knowledge and skills continues to increase in the local economy, Coleg Gwent's goal is to educate future workers in a specialised facility, surrounded by innovative technology that reflects industry practices. Our ambition is to equip learners with the necessary tools to meet the demands of the workforce of the future.”

The ISG situation poses a significant challenge for both contractors and subcontractors, many of whom now face severe financial losses and potential job cuts. However, there is a commercial opportunity for nimble suppliers to step in, ensuring these projects proceed without significant delays and offering support to subcontractors.

Commenting on these developments, Glenigan 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 chains to minimise financial stress and avoid any additional loss of industry capacity.”

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