Your support helps us tell the story.
From reproductive rights to climate change and big tech, The Independent is on the ground as the story unfolds. Whether investigating the finances of Elon Musk's pro-Trump PAC or producing our latest documentary, 'The A Word,' which sheds light on American women fighting for reproductive rights, we know how important it is to analyze the facts from the messaging .
At such a critical time in American history, we need journalists on the ground. Your donation allows us to continue sending journalists to talk about both sides of the story.
Americans across the political spectrum trust The Independent. And unlike many other quality news outlets, we choose not to exclude Americans from our reporting and analysis with paywalls. We believe quality journalism should be available to all and paid for by those who can afford it.
Your support makes all the difference.
Dozens of schools and prisons in England and Wales face higher bills and delays to new buildings worth billions of pounds after the collapse of one of the UK's biggest contractors.
ISG, the UK's sixth largest builder, collapsed in September, leaving 2,200 workers immediately laid off and many subcontractors out of money. At least one company that worked for ISG has gone bankrupt.
Their contracts included schools from Exeter to London, as well as four new prisons and penitentiary improvements from Dorset to Liverpool.
The collapse could not have come at a worse time, when the government aims to resolve the prison overcrowding crisis and increase school construction to combat the specific crisis.
On top of that, industry experts say this suggests no lessons have been learned since the collapse of Carillion, another major builder. Builders still underbid in an effort to grow and expect their suppliers to shoulder the burden. The company's suppliers are also affected: it collapsed owing £981m to creditors, including suppliers, according to the Sunday schedule.
ISG had around £2.5bn of work underway across 57 sites, with £1.7bn of work in the pipeline, including £518m of work with the Ministry of Defence, according to Tussell, which analyzes government contracts. It was also contracted to build four prisons for around £300m and a dozen schools for around £1.2bn in government contracts.
One of their contracts was to build a new school for The Bishop's Stortford High School, a local authority senior school in Hertfordshire with 1,250 pupils.
Director Dale Reeve said he only received notice of the collapse the day before the news broke, as ISG workers were finishing their last day of work at the site.
The consequences have been “enormously stressful,” he said. The school is more than 80 percent finished, but is still waiting to be able to use the sports hall and much of the parking lot.
“ISG left several subcontractors unpaid, making it difficult for us to find people to complete the project,” he said.
The local authorities are overseeing the project, so money is not a direct concern for him, but he does not know when the school will be finished.
The city council is “working hard,” he says, but “I want the school to be finished as quickly as possible. And they don't want to spend more money than necessary, which is totally understandable.”
ISG began in 1989 as an interior installer, spun off from builder Stanhope. It floated on the London Stock Exchange in 1997 as Interior Services Group, and the majority of its business is dedicated to setting up offices in central London.
Then it started buying its competitors. In 2016, the American company Cathexis, owned by Texas billionaire William Harrison, privatized it. Harrison also owned part of Britishvolt, a defunct British company that wanted to make batteries for electric cars. ISG was to lead the construction of the project. He reportedly lost no money from the gigafactory collapse.
ISG management attributed its definitive end to the loss-making contracts it acquired in the period prior to the Covid-19 lockdowns.
For some in the industry, ISG's demise recalls the end of Carillion, another major contractor, which collapsed six years ago, leaving 3,000 people out of work and 450 public sector projects on hold.
Carillion was the UK's second biggest builder and left £7bn in debts, including money owed to suppliers.
Rico Wojtulewicz, head of policy and market insights at the National Builders Federation, said Carillion's collapse “was not an isolated case, because we are not entirely convinced that the largest contractors are not still effectively financing their businesses by paying late and have loss-making projects being paid for by other projects.
“We think that's still going on and obviously that was the big problem with Carillion, and it seems to be a problem again with ISG.”
Prime contractors often subcontract work and may be late in paying their contractors. While there is an industry code on prompt payments, it is sometimes ignored, he said.
A bigger problem is that clients, whether governments or private developers, choose the cheapest offer.
“If you talk to a lot of contractors, they often say, 'I don't understand how this person won that contract.' They will never be able to deliver it,” he said.
Contractors, including Carillion, would win by submitting low bids, reasoning that in some contracts advertising would make the shortfall work worthwhile.
Promoters were supposed to avoid simply choosing the cheapest bid by applying the most economically advantageous tendering method (meat), which was introduced a decade ago by the EU and the indicated price was only one of the factors to be considered.
Since then, efforts have been made to further reform meat as customers continue to use price as the primary metric, leading to price wars and contractor bankruptcy.
When builders go bankrupt, the cost overruns can be gigantic.
Costs at Royal Liverpool Hospital and Midland Metropolitan Hospital soared. The Royal Liverpool was due to open in 2017 and cost £335m, but the contractor undertaking the work found structural faults and costs soared. It opened five years late and cost £1 billion.
More than 200 schools in the UK are partly built from a crumbled concrete known as Raac, or autoclaved reinforced cellular concrete. They will need to replace parts of their buildings, and the disappearance of a major contractor who would have been able to do the work will increase costs and timelines for schools.
Ed Griffiths, an analyst at Barbour ABI, said: “You could argue that nothing seems to have been learned from Carillion, compared to what is happening today.”
A more immediate problem is the human misery caused by the collapse of the ISG.
“There are people, scaffolders in the North West who were left holding the bag with half a million pounds on their books and who are just sitting there, waiting to hear: are we going to get paid? What are the administrators going to decide?
“The impact it will have on the industry is substantial – hundreds of millions of pounds in debt that may not be repaid.”
The Education Department declined to comment. A Ministry of Justice spokesperson said: “We have robust contingency plans to mitigate the impact on our prison and judicial estate of ISG going into administration.
“We are working with administrators and will find alternative ways to execute these projects when necessary.”
ISG administrators EY said: “As the business has ceased trading, unfortunately most functions will become redundant with immediate effect. Approximately 200 employees will initially be hired to help the administrators close the business.”
