Impact of ISG’s collapse on social housing sector

Lewis Evans, a solicitor with national law firm Clarke Willmott LLP, looks at the collapse of ISG and the potential impact on the social housing sector.

ISG going into administration has sent shockwaves through the construction industry. It is estimated that ISG owes £70 million to suppliers in unpaid debts and concerns have been raised about existing projects and the potential impact it has for continuing development and costs.

According to data from Glenigan, ISG had a £4.3 billion pipeline with social housing projects making up £18 million of that.

Although social housing makes up a very small proportion of ISG’s project work, we are recommending that any Social Housing providers who have employed ISG as a Contractor should consider their contractual and statutory rights, including:
• Is there a contractual right to terminate? For example, in the standard form JCT 2024 (unamended), there is a right to terminate if a Contractor has become insolvent
• Employers should check their contracts to see if there are any “step in rights” for the Employer to complete the works. This might allow the Employer to be responsible to carry out the work themselves or hire other persons under a new contract to complete the works
• The Employer should consider the Contractor’s obligation to return their design documents for the site and the assignment of any supply of goods and or execution of works contracts to the Employer
• Further payments are also suspended except for final payment sums
• The Employer should consider what further payments (if any) become due and whether a pay less notice should be issued and consider how to calculate what sums are due (and to whom) in the termination account
Delays to construction projects and extra costs to find and assess a suitable contractor to take over the works is just the tip of the iceberg. The insolvency of ISG has further far-reaching implications outside of projects where ISG was the main contractor.

The impact on the social housing sector includes concerns for the maintenance of existing social housing units and issues with sub-contractors on separate projects who are owed money by ISG and are subsequently at risk of collapse.

The crisis will also adversely affect the existing issue of social housing providers struggling to obtain contractor insolvency cover. Due to the high number of insolvencies in the construction sector, warranty insurers value the cover as “high risk” and Bonds are increasingly becoming an alternative as cover for losses.

If any social housing providers have been affected by the insolvency either directly or indirectly, they can contact Clarke Willmott’s leading social housing or construction teams for advice.

Clarke Willmott is a national firm with offices in Birmingham, Bristol, Cardiff, London, Manchester, Southampton and Taunton.