Industry Flounders as ISG Collapse Sinks In

AS THE IMPACT of ISG’s collapse is assessed by the UK construction industry, several organisations have warned of its ongoing ramifications.

ISG, which was delivering 69 public sector contracts worth around £1.84bn, appointed liquidators on 21 September 2024 for its 8 subsidiary businesses making its 2,200 UK workers redundant. By turnover, it was the sixth biggest contractor in the UK.

Amid subcontractor anger and the fear that other firms could be forced into administration by unpaid ISG debts, warnings of an endemic crisis in the industry abound.

Devastating

Today, Build UK’s Chief Executive Suzannah Nichol spoke to the BBC saying ISG’s liquidation is “devastating” for the industry. She warned of the unsustainably “thin margins” the industry operates on and the widespread delays its dogged by.

She added, “Construction insolvencies are at their highest level for over a decade, which raises further serious questions about the industry’s business model. For too long, inappropriate transfer of risk and unsustainable profit margins have been accepted as the way to do business.

“We have to change the way the industry operates in order to prevent more companies from ending up in this position.”

Cashflow is Critical

David Crosthwaite, BCIS Chief Economist, said, “The failure of ISG is likely to have serious knock-on effects for the sector. Further impacts will be felt throughout the supply chain as sub-contractors and suppliers are left unpaid.

“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.

“In addition, there will also be a raft of projects, at various stages of completion, that will be left unfinished and which clients will need to replace with a new contract as soon as possible to avoid compounding any losses.”

How Industry Should Respond

On Friday the Construction Leadership Council (CLC) held a meeting between key construction trade bodies, education and skills providers and the Department for Business and Trade to discuss how industry should respond to ISG filing a notice to enter administration.

The CLC said, “The CLC is collating detailed guidance available for those impacted and, in the interim, we would advise everyone in the industry to ensure that they are managing any impact on their businesses within the terms of existing contracts, 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.”

In their analysis of what went wrong, the Architects Journal said, “from the outset of most projects, there is insufficient time and money estimated to actually deliver the job. Experienced and knowledgable contractors are tendering so low that they are starting off on the back foot with hope that opportunities will arise to give them extra time and money.”

The National Association of Scaffolding Contractors (NASC) said, “The collapse of ISG threatens the livelihoods of countless scaffolding and access workers across the UK, who now face not only the prospect of unrecoverable debts but also the severe logistical challenges of having equipment tied up at multiple construction sites. These SMEs, which are vital to the infrastructure of the construction industry, often operate on tight margins and cannot afford to absorb such sudden and substantial financial losses.”

Thin Profit Margin

ISG Ltd operated at a profit margin of 0.57%, the company’s last accounts filed in May 2023 show. Its 2022 revenue was £2.2bn and underlying EBITDA for the year was just £36.9m with pre-tax profit of £11.5m. ISG’s biggest source of revenue was fitting out interiors, followed by construction and engineering services.

ISG’s order book was badly affected by the August 2022 suspension of the Britishvolt gigafactory in Blyth, Northumberland, and delays to a Hertfordshire film studio project. In November 2023, ISG CEO Matt Blowers and the senior team held urgent meetings with stakeholders to reassure them about the financial status of the group.

In February 2024, new CEO Zoe Price oversaw talks to sell the company but these fell through when potential buyer Antipodean Holdings was found to have insufficient re-financing options.

ISG Collapse

ISG Ltd subsidiaries entering administration are ISG Construction, ISG Engineering Services, ISG Retail, ISG Jackson, ISG UK Retail, ISG Central Services ISG Fit Out, and ISG Interior Services Group.

CEO Zoe Price said, “it was not possible to conclude a sale, as the purchaser could not satisfy the funding needed to recapitalise the business”.

However, Andre Redinger of Antipodean Holdings said a “fair deal” had been on the table and Antipodean had a robust turnaround plan, but ISG stalled as it suddenly stopped communicating on 12 September.

Ernst & Young’s appointment as administrators was confirmed on 20 September 2024.

Live projects ISG was working on a £518m Ministry of Defence contract and 22 Ministry of Justice projects, mostly prisons.

A £170m fit-out of Google’s London HQ at King’s Cross and a £44m conversion of a former IKEA store in Coventry are also affected.

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