ProjectPay said that subcontractors “have been left at the mercy of failed government protections and systematic abuse of insolvency laws”.
The company claims that large contractors “exploit” voluntary administration to avoid paying debts after “having misused” funds intended for subcontractors, such as project bank accounts (PBAs) systems.
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ISG left more than £1.1bn in unpaid debts when it went into administration last year. Many of those owed money for completed work were specialist subcontractors on Ministry of Justice prison projects, where ISG had a strong pipeline.
ProjectPay claims that funds owed to subcontractors were diverted into ISG’s insolvency estate, “forcing” the MoJ to transfer payments to administrators rather than to the supply chain, which had completed work on the MoJ’s projects.
EY-Parthenon, ISG’s administrators, rejects these allegations.
“The PBAs had nominal funds in them when administrators were appointed and claims that funds were diverted into ISG’s insolvency estate are factually incorrect,” EY-Parthenon told CM in a statement.
ProjectPay said it is coordinating the class action with litigation funders and “world-leading” law firms on behalf of subcontractors who are owed money.
'Death by a thousand cuts'
Louise Stewart, founder of ProjectPay, said: “Subcontractors were promised protection that simply did not exist. PBAs only protect money already in the account. They fail to stop subcontractor payments being captured by insolvency administrators. Small businesses, families and taxpayers have all been let down and misled.”
Stewart, a former IT executive and ex-chair of the Subcontractors Association in Western Australia, founded ProjectPay in 2017. The company operates a payments platform for the construction industry in the UK, Australia and the US.
Iain McIlwee, CEO of the Finishes and Interiors Sector, said: “For too long, subcontractors have been picking up the tab for the failings of others. We had Carillion and nothing happened. The numbers associated with ISG are again eye-watering, but between these two, there have been numerous failings that have felt like death by a thousand cuts to the supply chain.
“It is not right that hard-working specialists find themselves at the back of the queue when contractors collapse, shouldering far more than their share of the burden for poor procurement, contract administration and at times questionable business practices. The ISG case shows that we urgently need reforms that provide genuine protection so that small businesses are not carrying the cost of systemic failure.”
ProjectPay also raised concerns over EY's “conflicts of interest” about its role as ISG’s administrator, having previously provided pre-insolvency and restructuring advice to the contractor.
EY-Parthenon rejected this suggestion in a statement provided to CM: “Joint administrators at EY-Parthenon were appointed by the High Court of Justice to eight companies within the ISG Group on 20 September 2024.
“The administrators are officers of the Court and act in the interests of all creditors of the companies. EY-Parthenon has robust independence policies and complies with all applicable regulations and guidance.”
ProjectPay, which has received funding from Innovate UK to develop a platform to provide payment protection on public entity construction sector projects, is now pushing for US-style protections for UK subcontractors or “adoption of alternative platforms” to ensure that they are protected from insolvency losses.
