MoJ owes us £20m after contractor ISG’s collapse, say suppliers

The government is facing questions over what it owes tens of millions of pounds to suppliers working on improvements to three prisons in England.

At least 40 companies are believed to be owed money for work they carried out in Birmingham, Liverpool and Dorset before lead contractor ISG went into administration in September.

Small and medium-sized firms say they need to be protected as the Ministry of Justice (MoJ) promises to pay for projects through ring-fenced Project Bank Accounts (PBAs).

But some businesses now face bankruptcy, while others are threatening to take ministers to court. The Ministry of Justice declined to comment.

Lancashire-based European Screeding worked on the flooring of the refurbished cells from early 2024.

Sales manager Dan Henshaw said the firm had been paid until August 2024 but now had a monthly business arrears of around £130,000.

He explained that this was a “huge success”, with gross profits usually around £300,000.

“It had a huge impact,” he said. “We have overheads and staff salaries to pay.

“We are still feeling the repercussions at the moment and it has had a huge impact on cash flow.

“We’ve survived because we’re a relatively successful business, but we don’t walk away with a net profit every year.”

Mark Crumbie is now semi-retired but used to run Leicester-based Raven Project Metals.

A project working on walkways at HMP Birmingham represented his biggest contract yet and the 64-year-old hoped it would be his swan song.

But he said his former firm was still owed around £185,000 for about two months’ work and expected to make a gross profit of £75,000 from the whole job.

Mr Crumbie said he felt “very bitter” about the failure to deliver the protection promised by the PBAs.

“We were made clear that the money was safe,” he said.

“This was to stop a Carillion type situation where a main contractor went bankrupt and brought down everyone involved, but that is exactly what happened.”

Money paid to PBAs should be distributed to suppliers almost automatically.

But EY-Parthenon executives insisted that the accounts contained “nominal funds” when they were appointed.

This means the money was probably never paid by the Ministry of Justice, with Iain McIlwee of trade body Finishes & Interiors Sector (FIS) describing the situation as a “mystery”.

This has had a huge impact on small business owners, he said, with some facing bankruptcy themselves and others struggling with “significant mental stress and heartache.”

“They are fighting to get back the fee that was due 12 months ago,” he said.

“Corporations are people, and these are people in trouble who need support from our government.”

FIS is backing some firms’ debt and helping coordinate legal proceedings with law firm Hill Dickson.

Sarah Emerson, one of the partners of Hill Dickson, said that they made pre-action correspondence with the Ministry of Justice on behalf of seven companies working on the projects.

He said his customers were small companies who felt frustrated and couldn’t understand what was happening to the money they were owed.

“They were told it was a positive thing because [PBAs] “It will protect them from a bankruptcy,” he said.

“These are set up as a trust mechanism, which means the funds are ring-fenced.

“This means that the money in the Project Bank Accounts belongs to the people to whom it is legally due.”

The Cabinet Office withdrew its guidance on PBAs in July, despite describing them as a “pioneering new way of paying supply chain members in the construction industry”.

The BBC asked why this was happening and when new guidance could be expected but did not receive an answer.

A Justice Department spokesman said they could not comment due to possible legal action.

A spokesperson for EY-Parthenon said: “On 20 September 2024, eight companies within the ISG Group were appointed joint administrators by the High Court of Justice.

“Administrators are officers of the court and act in the interests of all creditors of the companies.

“There were nominal funds in the Project Bank Accounts (PBAs) when the administrators were appointed and allegations that the funds were transferred to ISG’s insolvency are factually incorrect.”