The Collapse of ISG:

The recent news of the collapse of ISG, one of the UK’s leading construction and fit-out companies, has sent shockwaves through the industry again following the failure of Carilion in 2018. With numerous high-value contracts in place across both public and private sectors, ISG’s sudden fall has left many organisations in a precarious position. Buyers who had placed their trust in ISG for the delivery of key projects now face significant challenges in ensuring the continuity of work and without question increased costs and project delays, while the collapse also reverberates through a supply chain that may have been heavily dependent on ISG contracts and forecast income.

Contributing factors to the collapse

While the full details of ISG’s downfall are still unfolding, early indicators suggest several factors may have contributed:

• Economic Pressures – rising costs in materials and labour due to inflation and post-pandemic recovery, along with economic uncertainty, have squeezed margins across the construction sector during recent years.
• Supply Chain Disruptions – ongoing global supply chain issues, exacerbated by geopolitical tensions, made the timely delivery of materials and components more challenging, leading to delays and cost overruns.
• Cash Flow Issues – as with many large construction firms, cash flow mismanagement can lead to insolvency. Over-reliance on a few major projects, reduced margins combined with late payments from clients and payment disputes, can quickly destabilise a firm’s financial position.
• Project Overstretch – an overextension of resources and underestimation of the complexity and cost of large-scale projects might have led to ISG being unable to meet its contractual obligations.

Identifying and Mitigating Procurement Risks

The ISG collapse serves as a reminder of the importance of continuous risk management in procurement. Buyers should adopt proactive strategies to mitigate risks and safeguard project outcomes.

• Thorough Due Diligence – it is critical to regularly review the financial health of suppliers, particularly for high-value, long-term contracts. Auditing financial reports, understanding dependency on key clients, and scrutinising project portfolios are all part of this process.
• Diversifying the Supply Chain – over-reliance on a single supplier can create vulnerabilities, although it can be difficult to avoid within large construction programmes. Diversifying suppliers reduces the impact of a single failure, providing organisations with options if a major supplier fails.
• Contractual Safeguards – contracts should include clear termination and exit clauses provisions, performance bonds, and financial penalties to protect against supplier failure. This ensures some recourse for buyers if their chosen supplier is unable to complete the contracted work.
• Regular Risk Assessments – constantly reviewing project risks including supplier performance, market conditions, and potential financial instability, helps procurement teams stay ahead of potential issues.

Re-procurement in the Wake of ISG’s Collapse

Organisations holding contracts with ISG now face the difficult task of re-procuring essential services to minimise disruption to projects and safeguard critical timelines. This process can be complex, particularly when time is of the essence and replacement suppliers need to be sourced quickly. To limit collateral damage, it is important to:

• Assess the Situation – understand the extent to which this news will impact your organisation. If your projects or services are affected, it’s crucial to act quickly, as others in similar positions will also be seeking new service providers within a suddenly smaller supply base. Swift action will help minimise project delays and reduce the overall impact.
• Assess Contractual Obligations – identify the current status of existing projects and contracts, particularly around timelines, deliverables, and remaining work.
• Leverage Industry Knowledge – engage with suppliers who have a proven track record in stepping in during moments of supplier distress. These suppliers will need to have both the expertise and capacity to take over mid-project.
• Re-evaluate Project Requirements – it may also be an opportunity to reassess current project needs and timelines to ensure they still align with organisational goals and budgets.

What should you do if you have procured services from ISG or any other firms that may be affected?

Assess Your Options: When a project is delayed due to the collapse of the main contractor, consider the following options:
• Abandon the Project – though this might seem drastic, abandoning a project may be the best course of action if it is still in its early stages and has faced significant setbacks. This doesn’t mean giving up completely but rather restarting it with lessons learned.
• Re-tender the Remaining Work – most projects will need to be completed. Re-tendering is a strong option to ensure this happens, but it’s important to assess how you can prevent new suppliers from encountering the same issues as ISG.
• Transfer the Contract – if the project is time-sensitive, consider transferring the contract to another contractor, bypassing a lengthy re-tender process. However, this option may add complexity, particularly in the later stages of a project, where novating to a new contractor might create additional issues.
• Direct Relationship with Subcontractors – if your project is nearing completion and you have a good relationship with the subcontractor, it may make sense to contract directly with them to finish the work. This approach is most viable in the later stages of the project.
• Get Help – being thrust into a situation like this can disrupt even the most prepared procurement teams. eXceeding can help you get back on track by managing your re-tenders or completing any remaining procurement processes for you. Our expertise ensures that your projects are safeguarded and delivered on time.

How eXceeding Can Help

At eXceeding, we specialise in helping organisations navigate complex procurement challenges, particularly in moments of crisis. Whether you need to rapidly re-tender contracts following a supplier collapse or reassess your risk management strategy to avoid being caught in a similar situation, we have the expertise to guide you.

Our end-to-end procurement services and specific expertise in running tenders ensure that:

1. You can swiftly re-procure essential services with minimal disruption to your project timelines.
2. Our experienced consultants can conduct thorough due diligence on new suppliers to ensure you’re partnering with financially stable, reliable organisations.
3. We can assist in renegotiating contracts and adding risk mitigation measures such as performance guarantees and flexible termination clauses.

The collapse of a major player like ISG highlights the importance of robust procurement practices and risk management strategies. Don’t let your organisation be caught off guard partner with eXceeding to secure your supply chain and safeguard your projects.