U.K. contractor ISG Ltd. entered administration, similar to bankruptcy in the U.S., Sept. 20. The company’s sudden downfall left other companies scrambling to respond and prompted some to call for changes in the way the U.K.’s construction industry operates.
The company said it immediately ceased U.K. operations and no further work would be undertaken on its contracts in the country. ISG laid off about 2,200 of its 2,400 employees. A court appointed three joint administrators from Ernst & Young LLP to manage the eight impacted subsidiaries: ISG Fit Out Ltd., ISG interior Services Group UK Ltd., ISG UK Retail Ltd., ISG Central Services Ltd., ISG Construction Ltd., ISG Jackson Lds., ISG Engineering Services Ltd. and ISG Retail Ltd.
ISG, which is owned by U.S. investment firm Cathexis Holdings, made the equivalent of $15.3 million in profit on $2.9 billion in revenue in 2022, according to the most recent financial report available. The company is the largest U.K. contractor to collapse since Carillion entered administration in 2018.
In an email to staff later shared on social media, ISG CEO Zoe Price, who was appointed to the role in February, wrote that losses on some large contracts signed between 2018 and 2020 for residential, logistics and distribution and data center projects had impacted its financial condition.
“So even though we have been profitable this year, our legacy has led us to a point where we have been unable to continue trading,” Price wrote.
Price added that the owners had been trying to sell ISG for months, but a potential purchaser had not been able to line up needed funding. Efforts to refinance the company also failed to materialize.
The sudden shutdown of the company’s projects left subcontractors and suppliers to document their work, collect equipment from worksites and record payments due. Project owners moved to reassure investors that their businesses would not be impacted by ISG’s collapse.
“We work alongside a network of contractors that will enable us to minimize disruption to ongoing ISG projects and explore alternative solutions,” developer Alliance Leisure, a repeat ISG client, said in a statement.
High Risk, Low Margins
U.K. construction leaders said the company’s insolvency is a sign that U.K. contractors have been operating with too much risk and too narrow margins. Data from the Construction Products Association show 4,373 U.K. contractors went out of business between January and July, a 4% increase compared to a year earlier. Industry group Build UK said in a statement that, “For too long, inappropriate transfer of risk and unsustainable profit margins have been accepted as the way to do business” and called for change in how the industry operates.
“Construction remains undervalued, and people underestimate the cost of construction” said Suzannah Nichol, chief executive of Build UK, in a BBC radio interview. “There have been changes since Carillion six years ago, [but] there clearly has not been enough change.”
The Construction Leadership Council, a collaboration between the country’s government and industry, said it was meeting to discuss how to respond to ISG entering administration and preparing to offer detailed guidance to those impacted by the company’s collapse.
