UK’s ISG collapse disrupts modular building sector

The collapse of ISG Group, one of the UK’s largest construction firms, has sent significant shockwaves through the modular construction sector, with two key subsidiary modular companies also falling into administration. The situation has raised concerns about the broader impact on the supply chain and the financial viability of smaller firms tied to ISG’s operations. The fallout from ISG’s collapse could result in further insolvencies across the sector.

Extraspace Solutions (UK) Ltd (ESS) and its subsidiary, Spatial Initiative Ltd, which were both involved in the design and installation of modular buildings, have ceased trading. As a result, the majority of their 100 employees have been made redundant with immediate effect. Based in Hull, the two firms were responsible for delivering offsite construction projects that contributed to addressing the growing demand for modular solutions in sectors like education and healthcare. However, significant financial losses on legacy contracts, combined with liquidity issues, left them unable to continue operations.

Administrators from EY-Parthenon have taken control of the firms, with Tim Vance, Charles King, and Andrew Dolliver tasked with managing the winding down process. EY has stated that both companies had been reliant on shareholder funding to alleviate cash flow pressures, but further funding attempts failed, forcing the businesses into administration. Both firms were part of ISG’s modular portfolio, having been acquired by ISG’s parent company, Cathexis, in 2022.

One of the most significant projects affected by the collapse is a six-year framework agreement with the Defence Infrastructure Organisation (DIO) to build living accommodation for the British Army. This contract, which was expected to provide long-term work for the modular companies, is now in jeopardy, and the future of the project is uncertain.

The broader consequences of ISG’s collapse are likely to be far-reaching. Suzannah Nichol, chief executive of Build UK, voiced concerns about the potential ripple effect on smaller businesses. Speaking to the BBC, Nichol emphasised that many smaller firms in ISG’s supply chain may not receive payment for work already completed. This could place significant financial strain on these businesses, pushing them toward insolvency. The collapse of ISG, combined with the failure of its modular subsidiaries, has brought fresh attention to the precarious financial footing of many firms in the construction industry.

The modular sector, in particular, faces challenges in maintaining sustainable growth. The liquidity problems that plagued Extraspace Solutions and Spatial Initiative demonstrate the difficulties companies face when managing long-term projects under tight financial constraints.

ISG, which had a turnover of approximately £2.2 billion (AUD $4.3 billion) and more than £1 billion (AUD $1.95 billion) in government contracts, was one of the UK’s most prominent construction firms. The group’s collapse, and the subsequent liquidation of its modular subsidiaries, represent a significant blow to the sector. Despite efforts to secure a rescue deal, ISG could not recover from its financial troubles, leading to widespread redundancies and unfinished projects.

Several employees of the affected modular firms have taken to professional platforms such as LinkedIn in search of new roles. The sudden closure has left workers shocked and demoralised, particularly as both Extraspace Solutions and Spatial Initiative had been involved in high-profile contracts, including the army accommodation framework.

See: ESS