ISG’s collapse: a huge blow to construction that raises urgent and difficult questions

For ISG the worst has now happened. Filing for administration will come as devastating news to its 2,000-plus staff and countless suppliers and subcontractors will now be bracing themselves for substantial financial losses. This is a truly grim place to be.

We have heard for some time that ISG was in financial difficulties, but hopes of a rescue deal were raised back in July when staff were informed by the chairman of an imminent sale.

Now we are faced with the biggest collapse the construction sector has seen since Carillion went into compulsory liquidation in 2018, and like then the implications are huge.

When stories like this break we know that behind the headlines real people’s lives are turned upside down. There will be a mix of emotions, from shock and upset to anger and frustration, and underlying all of that will be a need for answers. Once the loss starts to be processed, people very quickly want to know what went wrong.

When stories like this break we know that behind the headlines real people’s lives are turned upside down. There will be a mix of emotions, from shock and upset to anger and frustration

An email sent to staff last night from Zoe Price, ISG chief executive, confirmed the company has filed for administration and that “it was not possible to conclude a sale as the purchaser could not satisfy the funding needed to recapitalize the business”. In her email she points to “large loss-making contracts secured between 2018 and 2020 (primarily in the residential, logistics & distribution sectors as well as some data centre projects).”

There will be much more detail to come out in the coming weeks. Right now these are some immediate questions that need answering.

1. Job losses on a big scale are inevitable but how can the wider industry ensure it doesn’t lose good people permanently to other sectors? Already there are recruitment consultants gearing up to place people in firms that they know are crying out for experience and talent. Younger people just starting out on their careers, particularly apprentices, will also be desperate to find new opportunities – will employers step up? Will trade bodies co-ordinate a collective effort to find secure employment at this hugely stressful time?

2. ISG is thought to owe some subcontractors millions of pounds – one as much as £15m – while other firms could have up to 80% of their workload with ISG. This leaves many very exposed - so could we see a second and even third wave of administrations as the ripple effects spread out? Rival main contractors have for some time been expressing concern about the health of the supply chain – they must now be thinking of who they can best help and how. Again, this could require main contractors coming together and share information and ideas. A crisis such as this requires emergency measures.

3. How much disruption will there be to UK construction sites? It is thought ISG has up to 150 active sites – large and small – at the moment, so public and private sector clients will be assessing the impact and looking for others to step in to take on contracts. Will there be capacity in a sector that has shrunk and feels over-stretched as it is? The lawyers and consultancy firms on these projects will be under huge pressure to come up with solutions to get work back up on site fast.

4. What will happen on ISG’s biggest jobs? Last year the firm scooped Google’s HQ fit-out project worth £150m – what progress had ISG made on site and who will take it on?

5. Along with the disruption and pain comes opportunities for others. Could we see lucrative fit-out jobs picked off by well-known rivals in this space, or an ISG management team being formed to set up a phoenix vehicle that is able to offer project knowledge continuity to clients?

6. Situations like this have in the past led to people stripping sites of plant and equipment, desperate to reclaim money owed. The danger is that this gets out of hand and turns ugly, so client advisers will need to ask how best they can secure sites.

7. After these pressing concerns, come a few searching questions about how the situation could have got this bad. For example, why did ISG Texan billionaire owner William Harrison decide he wanted to sell in the first place? And why did the sale he hoped was lined up ultimately fail? How much money did he plough into the business since he bought it for £85m back in 2016? And how much debt has it racked up in total and who is owned what? We will have to wait for the administrators report for many of the answers but people will be trying to find out where ISG’s problems ultimately stemmed from and which particular problem jobs helped to tipped them over. We might eventually find out the collapse was caused by an accumulation of internal and external factors that proved overwhelming in the end.

8. And finally when an company of this size goes bust – with billions of pounds worth of turnover, thousands of staff and important government contracts – it must raise even bigger questions. Questions about the fundamentals of the contractor business model, which looks more broken than ever before. We don’t yet know the ins and outs of what has happened at ISG – the sequence of events will emerge soon enough. But at a time when almost all main contractors are admitting their profit margins are pitiful, it does force us to ask what can be done to improve the state of contracting. Government has big growth plans, it knows construction has a major role to play and is relying on it to be its delivery partner. Surely now ministers must be looking at the situation and wondering how to best step in.

We will be looking at all of these key areas in the days and weeks to come, if you have views, insights, information you want to share with the Building team get in touch.

Chloe McCulloch is the editor of Building