When ISG Ltd, one of the UK’s biggest construction companies, went into administration in September 2024, it didn’t just make headlines – it sent shockwaves through the building industry. Over 2,200 workers lost their jobs overnight, and over £1 billion worth of government building projects were suddenly left hanging in the balance.
This collapse didn’t come out of nowhere. And now, many people are asking how it happened, and what it means for other businesses working on public contracts.
How big was ISG Ltd?
ISG Ltd wasn’t a small player. It was one of the biggest firms that built schools, prisons, and public buildings for the government. In just one year (2023/24), it earned £237 million from public sector work. Over the past six years, it has brought in more than £1.2 billion from government contracts. [Source: Tussel]
Its biggest client was the Ministry of Justice (MoJ), responsible for prisons and courts. One of ISG’s largest jobs was a £1.2 billion project to build four new prisons. [Source: Tussel] So when ISG Ltd’s failure happened, the impact was immediate and widespread.
Too much reliance on big contractors
One of the main issues this situation highlights is that the government relies too heavily on a few big companies to handle important projects. When just one of those companies collapses, like ISG or Carillion before it in 2018, it puts a vast number of jobs, businesses and services at risk. [Source: BBC]
There were warning signs. ISG had been losing money for two years before going under. Still, it was awarded new government contracts, which shows a major weakness in the way the government checks the financial health of companies it hires.
What happens to these government projects?
Many people assume that government contracts are automatically cancelled when a company goes into administration. That’s not true. The administrators, who are brought in to try and sort out the company’s finances, decide if it’s worth continuing the contracts.
In the meantime, projects like prison construction and school refurbishments can be put on hold. Some may be passed to other building firms. The Ministry of Justice says it has ‘contingency plans’ in place, but experience shows that delays and extra costs are likely. [Source: BBC]
A hard hit for small businesses
ISG didn’t work alone – it relied on hundreds of smaller subcontractors to carry out its projects. These small businesses often wait weeks or months to get paid. With ISG owing over £700 million to its supply chain, many of those businesses are facing serious trouble. [Source: Tussel]
Some may not survive. One contractor said they’re owed more than £20,000 and may never see it. Another said they know companies owed over £1 million. [Source: BBC] The knock-on effect of ISG Ltd’s failure is massive, hitting smaller firms the hardest.
Why it all fell apart
ISG’s problems didn’t appear overnight. According to its CEO, the company took on large jobs between 2018 and 2020 that lost money. [Source: BBC] That alone isn’t unusual in construction, where companies often work on tight budgets. But when margins are so small, just one or two problem projects can sink a business.
Many in the industry are now saying that the way public building contracts are awarded must change. If companies are bidding too low just to win work, it creates long-term problems that can lead to collapse.
What needs to change?
ISG Ltd’s failure shows us that the public sector needs to change how it works with building firms. Some possible improvements include:
– Better financial checks: When the government gives a company a big job, like building a prison or a school, it should check more than just whether they can do the work. It also needs to make sure the company is financially stable. And it shouldn’t just check once at the beginning. These jobs often last years, so regular financial health checks are a must to avoid nasty surprises down the line.
– Spreading the risk: Currently, a lot of public work goes to a small number of big construction companies. When one fails, like ISG Ltd did, it causes significant problems. Giving smaller and medium-sized businesses more chances would spread the risk and make the whole system more stable. It would also support local businesses and create a fairer playing field.
– Protecting subcontractors: Big building firms often hire smaller subcontractors to do most of the hands-on work. But when a large contractor goes bust, these smaller companies lose out and go unpaid. That’s not right. Better protection needs to be implemented to ensure these businesses don’t get left high and dry just because the main contractor failed.
– Realistic pricing: Choosing the cheapest quote for a job might seem like a good idea, but that can lead to big problems later. If a company undercharges just to win the contract, it may struggle to finish the job properly. It’s better to look at the whole picture. Is the price realistic? Does the company have a good track record? Can they deliver what’s needed? Paying a bit more upfront can save time, money and hassle later.
The bigger picture
ISG Ltd’s failure is a reminder of how fragile the construction sector can be, even for the biggest players. It’s also a wake-up call for how public contracts are managed in the UK.
Whether you’re a subcontractor waiting to get paid or a business owner worried about the future, getting clear, professional advice about your options is important. We help businesses every day through difficult financial situations – and we can help you, too.
Need help understanding your options?
If you’re unsure about the best way forward for your business, our expert team is here to help. Our experienced Insolvency Practitioners – fully authorised by the Institute of Chartered Accountants in England and Wales – offer clear, honest advice tailored to your situation. We provide free, no-obligation guidance to help you close your business in the most practical and affordable way. Get in touch using the form below, live chat with us, email mail@Simpleliquidation.co.uk, or call us on 0800 246 5895 – we’re ready to support you.
