More construction firms could fold after ISG's 'devastating' collapse, Build UK boss warns

The collapse of construction group ISG with the loss of more than 2,000 jobs is going to be “devastating” for the industry and could result in some of its supply chain partners also folding, the head of an industry trade body has warned.
ISG, which was in the middle of dozens of government projects including work to prisons, collapsed into administration on Friday afternoon.

The majority of its 2,400 employees were made redundant after the UK business appointed joint administrators at EY, and shut down its sites immediately. It is the biggest failure in the construction industry since Carillion in 2018.

Suzannah Nichol, chief executive of Build UK, told Radio 4’s Today programme on Monday morning that the knock-on effect of ISG’s collapse is likely to be substantial.

She said: “It will be devastating, there is no other word for it. It is a £2bn company going down with 2,500 employees – 140 of those were new entrants, graduates or apprentices, literally just starting out their career in construction.

"You add into that a very long supply chain within construction. Many of those will not have received payment for the work they have done and unfortunately they will not receive that money now.

"We have a practice in construction where money is withheld from companies in the supply chain and they will not see that money. 

"This will have a significant impact and we may unfortunately see other companies within the supply chain now go down as a result of the collapse of ISG.”

When asked whether there had been a failure to learn lessons from the collapse of Carillion, Ms Nichol said: “Construction remains undervalued.

"People underestimate the cost of construction. While of course there have been changes since Carillion which was six years ago, there clearly has not been enough change.

"We know construction runs on very thin margins. It has a margin of about two per cent, you only need one project to get delayed and it has cashflow issues.

"You have to look at the way contracts are procured. ISG had two major contracts they started and mobilised for but were stopped by the client. That happens time and time again.

"We have to change the way it is procured and pay what construction is worth. Construction and delivering projects is not a cheap business. People still want to pay the lowest price.”

EY said on Friday that ISG had been trying to find a buyer but failed to secure a suitable rescue deal.

A potential buyer “could not, despite repeated requests of them to do so, adequately demonstrate that they had the funding needed to recapitalise the business and keep it solvent”, it added.

“Due to current market conditions, an alternative sale or additional funding could not be secured.”

The London-based business employs about 2,400 people across its UK business, the majority of whom will be made redundant with immediate effect.

Around 200 employees will initially be kept on to assist the administrators in winding down the business.