Ineffective Risk Management and the collapse of ISG

COMMENTARY

By Dr. Robert J. Chapman

United Kingdom

Introduction

As reported in the press, on 20 September 2024 the UK’s sixth largest contractor^[1], ISG, including its subsidiary ISG Construction Limited, went into administration. At the time of collapse, ISG was involved in 69 central government projects totalling more than £1 billion^[2] including 22 projects for the Ministry of Justice (MoJ)^[3].  Ernst and Young were appointed as joint administrators by the High Court of Justice in England and Wales^[4] under the Insolvency Act 1986. The firm was owned by the private U.S. equity firm Cathexis Holdings LP, which had been attempting to sell off ISG in recent months.  Its collapse is the largest failure in the building sector since the liquidation of Carilion in 2018-previously described in the PM World Journal commentary “Ineffective risk management and the collapse of Carillion”, published in December 2018.

The timing of news of the collapse is particularly significant given that ISG was part of the Ministry of Justice’s five-year £2.5bn constructor services framework^[5]. The framework encompasses new build, alterations, refurbishment and maintenance requirements across the entire MoJ UK estate. ISG was holding contracts with a combined value of £1.65billion. They included an upgrade contract for the change of category of the Victorian-era His Majesty’s Prisons (HMP) Liverpool valued at £56m, upgrading HMP Birmingham under a £61million contract and an extension and refurbishment of HMP Guys Marsh in Dorset, valued at £79millon. The collapse has come at a very unfortunate time for the UK government. The news of the demise of ISG follows hard on the heels of reports by mainstream news channels of an overcrowding crisis within the national prison system, the shortage of prison spaces exacerbated by prosecutions following national riots and the controversial early release of prisoners.

ISG

ISG described itself as “a dynamic global construction services company”. Within its Annual Report of 2022 ISG announced “Our vision is to become the world’s most dynamic construction services company, delivering places that help people and businesses thrive”. In November 2022 at the Building Awards it was named as Major Contractor of the Year (over £500m). Their construction business operated internationally delivering what it called “hyperscale, technically complex and highly engineered construction projects” including “hospitals and scientific labs, datacentres, advanced technology facilities, film studios, pharmaceutical manufacturing plants, and logistics and distribution hubs”.

Following securing new contracts from the MoJ in March 2023, ISG issued a press release in which Alister McNeil, (ISG Sector Director for Justice) said “The MoJ continues to be one of our most innovative and progressive customers across a range of measures – from procurement approaches, modern methods of construction (MMC) adoption and as an environmental, social and governance (ESG) trailblazer” ^[6]. The release emphasised the reliance the MoJ was placing on ISG.

Subsequent to the announcement of the collapse of the company in the media, the Chief Executive, Zoe Price, explained to staff that the current situation had arisen due to legacy issues relating to large loss-making contracts secured between 2018 and 2020^[7] primarily in the Residential, Logistics and Distribution sectors as well as some Data Centre projects. In an email sent to its 2,400 staff on 19^th September confirming the administration, Price advised that offices would be closed, sites would not open and that all subcontractors would be stood down.

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How to cite this article: Chapman, R. J. (2024). Ineffective risk management and the collapse of ISG; PM World Journal, Vol. XIII, Issue X, October/November.  Available online at https://pmworldlibrary.net/wp-content/uploads/2024/11/pmwj146-OctNov2024-Chapman-ineffective-risk-management-and-collapse-of-ISG-1.pdf

About the Author

Dr. Robert J. Chapman

United Kingdom

Dr Robert J. Chapman, PhD, MSc., FAPM, CFIRM, FCIHT, FICM is the Managing Director of Dr Chapman and Associates Ltd. He is an international risk management specialist. He has provided risk management services in the UK, the Republic of Ireland, Holland, UAE, South Africa, Malaysia and Qatar on multi-billion programmes and projects across 14 different industries. He is author of the texts: ‘The SME business guide to fraud risk management’ published by Routledge, ‘Simple tools and techniques for enterprise risk management’ 2^nd edition, published by John Wiley and Sons Limited, ‘The Rules of Project Risk Management, implementation guidelines for major projects’ 2^nd edition published by Routledge Publishing and ‘Retaining design team members, a risk management approach’ published by RIBA Enterprises. He holds a PhD in risk management from Reading University and has been elected a fellow of the IRM, CIHT, APM and ICM and is a former member of the RIBA. In 2007 Andrew Bragg (APM Chief Executive at the time) formally confirmed he has exceptional risk management skills. Robert has passed the M_o_R, APM Level 1 and PMI risk examinations. He has been shortlisted for national risk management awards in 2014 and 2024. In addition, he has provided project and risk management training in Scotland, England, Singapore and Malaysia. Robert has been an external PhD examiner.

He can be contacted at DrChapmanAssociates@outlook.com

[1] Construction News (2024) “Exclusive: ISG collapse risks £1.84bn of government contracts
20 Sep 2024 By Charlotte Banks
[2] Independent (2024) “Construction firm ISG in administration in UK with around 2,400 redundancies”, Anna Wise. 21.09.2024
[3] The Standard (2024) “Construction firm ISG in administration in UK with around 2,400 redundancies” 21.09.2024
[4] Ernst and Young (2024) “ISG Administrations” https://www.ey.com/en_uk/administrations/isg-administrations#:~:text=On%2020%20September%202024%20the%20Companies%20entered%20administration,and%20Dan%20Edkins%20were%20appointed%20as%20Joint%20Administrators.
[5] Construction News (2024) “ISG wins £135m prison jobs”, 07 Mar 2024 By Ben Vogel
[6] ISG (2023) “ISG secures new framework and major project win with Ministry of Justice. ISG continues to build on its near two-decade relationship with the Ministry of Justice (MoJ) – with two landmark wins”. 15 March 2023. https://www.isgltd.com/uk/en/news/isg-secures-new-framework-and-major-project-win-with-ministry-of-justice#:~:text=ISG%20continues%20to%20build%20on%20its%20near%20two-decade,a%20%C2%A361%20million%20upgrade%20scheme%20at%20HMP%20Birmingham.
[7] BBC News (2024) “Construction giant collapse sees 2,200 jobs cut” . Maisie Lillywhite and Lora Jones. 20 September 2024