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Lawyers acting for six ISG subcontractors have threatened the Ministry of Justice (MoJ) with legal action over unpaid money they say is owed on former ISG prison projects.
Hill Dickinson is representing a group of subcontractors who say they were left out of pocket on three project bank accounts (PBAs) in operation at HMP Birmingham, HMP Liverpool and HMP Guys Marsh.
On 11 August, the law firm sent a pre-action letter to the department on behalf of six firms, demanding payment of unpaid money that was expected in August last year – the month before ISG’s collapse.
Hill Dickinson partner Kate Kenneally, who is working on the case, said: “As the ultimate client and a party to the PBA Trust Deed, the MoJ is contractually obliged to ensure these payments are made. The failure to do so constitutes a breach of both the PBA and the associated contractual framework.”
A PBA is a ringfenced bank account from which payments are made directly and simultaneously to a lead contractor and members of the supply chain.
A 2012 guide to PBAs by the Cabinet Office – in place at the time that the contracts were signed, but since withdrawn – is clear: PBAs are “intended to allow payment to named suppliers to continue in the event of the insolvency of the contractor”.
The firms say they had expected to receive money for work – signed off by quantity surveyors – that was carried out in the months running up to ISG’s collapse.
But the MoJ has repeatedly said no funds are available, instead referring the subcontractors to ISG’s administrators at accounting firm EY. The MoJ refused to comment on the case when approached by Construction News.
However, business minister Lord Timpson said in a parliamentary written answer in June: “Subcontractors have been made aware that the department is not able to underwrite debt owed by ISG as a result of their administration, and that they should engage with the joint administrators (Ernst & Young) with regard to any claims arising from their contracts with ISG.”
Hill Dickinson partner Sarah Emerson said: “Under the PBA’s trustee status, the department owes a duty in law, which is quite distinct from the normal employer-contractor relationship. When you assume a trustee role, they are supposed to protect and ultimately look after that money.”
About 350 firms were employed on PBAs across the three prison contracts, as well as on court construction projects.
Iain McIlwee, chief executive of sector association the Finishes and Interiors Sector, is involved in the case, and has estimated that 40 subcontractors he is in contact with are short of some £20m from the three prison PBAs.
McIlwee told CN: “Hardworking SMEs from across the supply chain entered into an agreement with our government with the clear understanding that they would benefit from the protection of a PBA in the event of an insolvency event. This protection has to date failed them.”
Read our analysis on the ISG prisons PBAs here
