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

The government is currently investigating tens of millions of pounds owed to suppliers who worked on upgrades at three prisons in England after the lead contractor, ISG, entered administration in September.

The Core Issue

At least 40 small and medium-sized businesses (SMEs) are reportedly owed an estimated £20 million for work carried out at HMP Birmingham, HMP Liverpool, and HMP Guys Marsh (in Dorset/Dorchester).

These businesses claim they were covered by Project Bank Accounts (PBAs), which the Ministry of Justice (MoJ) had promised would ring-fence funds for the schemes. PBAs were introduced following the 2018 collapse of Carillion to protect smaller firms by holding payments in designated accounts that could only be used to pay suppliers, preventing a main contractor's insolvency from impacting the supply chain.

However, suppliers report that the PBAs failed, with some firms now facing bankruptcy and others planning to sue the government. Two firms working on HMP Birmingham described the PBAs as "not worth the paper on which they were based."

Supplier Impact and Concerns

The impact on the small businesses has been severe:

European Scrameeding, a Lancashire-based flooring company, is owed approximately £130,000 for one month's work—a "massive blow" given their gross revenue is usually around £300,000. Sales Manager Dan Henshaw stated that the non-payment has had a "huge effect on cash flow" and that they are only managing to "remain afloat" because they are a small company.
Mark Crumbie, formerly of Raven Project Metals, is owed nearly £185,000 for about two months of work on HMP Birmingham's walkways, a job from which his company was only expected to make £75,000 gross profit in total. He expressed regret at having trusted the PBA guarantee, saying: "We were very sure the money was safe. It was to prevent another Carillion-type situation... but that's just what's going to be."
Emotional Strain: Iain McIlwee of Finishes & Interiors (FIS) highlighted the "serious emotional strain and heartache" for small business owners, noting that they are struggling to get back money they were due 12 months ago.

PBA Status and Legal Action

The key controversy centres on the status of the PBAs:

Nominal Funds: EY-Parthenon, the administrators appointed to eight ISG Group companies, stated that the PBAs had "nominal funds" in them when they were first established, suggesting the money was never paid in by the MoJ. The administrators also confirmed that allegations of funds being moved into ISG's insolvency estate are inaccurate.
Trust Mechanism: Sarah Emerson, a partner at law firm Hill Dickinson, explained that PBAs are set up as a trust mechanism, meaning the funds are ring-fenced and legally belong to those due to be paid. Her clients were told the PBAs would shield them from insolvency.
Legal Proceedings: Hill Dickinson is currently involved in pre-action correspondence with the MoJ on behalf of seven companies.
Government Stance: The Cabinet Office revised its advice on PBAs in July, despite previously describing them as a "pioneering new way of paying" supply chain members. The BBC has not received a response on why this change occurred or when new guidance will be released. A spokesperson for the MoJ declined to comment due to pending legal proceedings.