Yosof Ewing, ‘The Contract Coach’

The downfall of ISG, a significant name in construction, has shaken the industry to its core, putting countless jobs in jeopardy and casting doubt over many public and private projects. However, this collapse is not just a one-off failure—it’s a symptom of a deep-rooted issue that the construction sector must confront before more damage is done.

Operating a business with a turnover of £2.2 billion and a profit margin of just £11 million—equating to a precarious 0.5%—is a recipe for disaster. Such a fragile model isn’t an unfortunate circumstance; it’s a strategic choice, revealing a wider problem among top-tier construction companies. ISG’s decision to persist with such a minimal margin raises serious concerns about the industry’s long-term sustainability.

It seems that ISG, through cash flow management, essentially borrowed around £800 million from contractors and suppliers, only to default on this unwritten loan. The real question is: where did these funds end up? This practice places the burden on what I call the “Loyal Bank of Subcontractor,” leaving smaller businesses to absorb the losses. It’s a massive betrayal, showing a lack of accountability and integrity in ISG’s practices. Frankly, ISG’s actions border on unethical—potentially even criminal—given the immense damage caused. The government and legal authorities should investigate to determine if any fraudulent activities have taken place.

A Long Road to Failure: The ISG Story

ISG’s collapse did not happen overnight. It was the result of years of mismanagement, overly ambitious projects, and persistently low margins. This was a company once praised for its high-profile developments, including the Olympic Velodrome and KPMG’s headquarters in Canary Wharf. But by 2015, losses from poorly managed projects began to accumulate. A private equity firm, Cathexis, stepped in with a £30 million lifeline in 2016, hoping to turn the company around. Despite this, ISG could not recover, and by September 2024, the company entered administration, leaving 2,400 employees without work and more than £1 billion worth of government projects at risk.

The impact on ISG’s supply chain has been catastrophic. Suppliers and subcontractors, who depend on timely payments, have faced severe financial strain. This is a crisis that should never repeat itself—but without change, it undoubtedly will. A deeper look into the finances of other Tier 1 contractors reveals that many operate on similarly unstable foundations, making them just as susceptible to collapse.

The Unsustainable Model of Tier 1 Contractors

The problems we see with ISG reflect a broader trend among Tier 1 contractors. These companies, much like Carillion before them, have adopted a dangerous model: relying heavily on specialist subcontractors while delaying payments to keep their own cash flow intact. This creates a damaging cycle, leaving smaller firms—who form the bedrock of the industry—financially exposed. In the last year, around 4,500 construction companies went under due to cash flow problems and late payments, accounting for 20% of all UK insolvencies.

Since the end of the pandemic, our research indicates that around £1.7 billion in losses have been borne by the supply chain due to such practices. This isn’t merely poor business acumen—it’s a form of financial manipulation. When firms operate on profit margins as low as 0.5%, while owners and executives extract millions in fees and salaries, it raises serious ethical questions. The recurring collapses we witness are not random incidents but part of a flawed system, where the risks are offloaded onto smaller contractors for the benefit of a select few at the top.

A Path to Stability: Reforming the Construction Act

The government has a chance to address this crisis by making crucial reforms to the Housing Grants, Construction, and Regeneration Act 1996, also known as the Construction Act. Originally designed to ensure smoother cash flow, the Act has become bogged down by legal challenges, and its purpose has been overshadowed. Without significant changes, the construction industry risks further instability.

Several key amendments could help bring much-needed stability to the sector:

1. Enforce Binding Adjudications: Adjudicators’ decisions should automatically be enforceable, with parties having the right to appeal later. This would prevent unnecessary delays and ensure that cash flows smoothly where it’s most needed.
2. Clarify Payment Terms: Simplifying the language around payment timelines—such as renaming the “Due Date” to “Start Date”—would align with standard accounting practices, ensuring transparency.
3. Strengthen Notice Requirements: The failure to issue Payment Notices currently has little consequence. Instituting penalties for non-compliance would promote fairness and accountability.
4. Standard Payment Schedules: Mandating consistent payment terms across all contracts would prevent larger firms from imposing unfair conditions on smaller suppliers, creating a more balanced playing field.
5. Eliminate Legal Loopholes: Repealing Section 105(2) would remove exclusions that hinder the effectiveness of adjudication, ensuring a more streamlined process.
6. Regulate Adjudicator Bodies: A commission could oversee adjudicator nominating bodies, ensuring that decisions remain fair and transparent.
7. Allow Adjudicators to Award Costs: This would deter frivolous claims and ensure that the financial burden of disputes is fairly distributed.
8. Expand Adjudication to Other Sectors: Bringing the benefits of adjudication to industries outside of construction could improve dispute resolution across the board and ease the burden on courts.

Such reforms could create a more equitable environment for all players in the construction industry, fostering stability and trust.

The True Cost: Beyond Financial Losses

Behind the statistics of failed businesses lies a more troubling reality—the human cost. The construction industry’s high-pressure environment has contributed to a mental health crisis, with workers nearly four times more likely to die by suicide than those in other sectors, according to the Office for National Statistics (ONS). That’s equivalent to two lives lost every day. Financial insecurity caused by delayed payments and unfair contract terms only exacerbates these issues, putting lives at risk alongside livelihoods.

Holding Advisors Accountable

It’s not only the contractors that should bear the blame. Legal and financial advisors who create and endorse exploitative contracts play a significant role in maintaining this broken system. Their work often enables practices that harm small businesses and workers. It’s time for these professionals to take responsibility for their role in enabling a business model that is fundamentally unsustainable.

A Call to Action for the Industry

The collapse of ISG should serve as a turning point for the construction industry. The sector is at a crossroads: it can either continue with a flawed model that risks more failures, or it can embrace necessary reforms. Specialist contractors deserve better protections, with transparent payment terms and safeguards against the financial mismanagement of their larger counterparts. Reforming the Construction Act is a crucial first step, but true progress requires acknowledging the deeper issues that plague the industry.

We can no longer dismiss these failures as isolated events. They are part of a systemic problem that needs urgent attention. Only by facing this reality can we begin to rebuild a fairer, more sustainable construction industry—one that genuinely upholds the values it professes to champion.

This is a call to action for government, industry leaders, and stakeholders alike. The time for change is now. We owe it to the thousands of businesses and workers affected by this broken system, and to the future of an industry that is essential to our nation’s growth.