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Construction fintech business ProjectPay says that subcontractors in the UK and Australia have been left at the mercy of failed government protections and systematic abuse of insolvency laws. It claims that large contractors exploit voluntary administration to avoid paying debts, having misused funds intended for subcontractors.

Project bank accounts (PBAs) – the solution adopted by both the UK and Australian governments – have failed to protect money owed to subcontractors when major contractors collapse, as evidence by the failures of ISG in the UK last year and Pindan in Western Australia in 2021.

A landmark class action lawsuit is now being prepared on behalf of UK and Australian subcontractors against their respective governments.

In the UK, the September 2024 collapse of ISG left more than £1.1bn in unpaid debts, with specialist subcontractors on Ministry of Justice (MoJ) prison projects among those who have gone without payment for completed work. Despite using PBAs, funds owed to subcontractors were diverted into ISG’s insolvency estate under UK insolvency laws, forcing the MoJ to transfer payments to administrators rather than directly to the supply chain who had completed work on MoJ’s projects and remain unpaid.

In Western Australia (WA), subcontractors have waited more than four years for answers following the $80m collapse of large government contractor Pindan. The WA government had mandated PBAs on public projects and assured the industry they provided insolvency protection, even though it had already drafted in 2019 – then abandoned – these same laws that already exist in the USA that would have safeguarded payments.

Louise Stewart, who founded ProjectPay in 2019, 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.”

Both cases point to systematic failures in government policy and oversight, it is claimed. In each insolvency, Ernst & Young acted as administrator despite previously providing pre-insolvency and restructuring advice (and been paid generously for it) to the contractors’ parent companies and their banks, raising concerns over conflicts of interest and whether subcontractors’ interests were properly represented.

Iain McIlwee, chief executive of the Finishes & Interiors Sector (FIS), a trade body for subcontractors, 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.”

The proposed class actions aim to hold both governments accountable for misleading subcontractors and to secure compensation for those left unpaid. They will also push for meaningful reform, including US style protections for subcontractor payments that have shown to be effective, or adoption of alternative platforms, that are effective in ensuring subcontractors are paid and protected from  insolvency losses.

Louise Stewart, a former chairman of the Subcontractors Association in WA, believes her platform, ProjectPay, is just such a solution. She has received public funding from Innovate UK to develop the platform, with ProjectPay now providing payment protection on public sector construction projects.

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