Whether there is to be a no-deal exit from the EU or an agreement providing for exit over an extended transition period, there is no doubt that leaving the EU will be disruptive to construction projects. The very nature of the construction sector – discrete projects giving rise to varying workloads, as well as (generally) low profitability – means that it has been difficult for the sector to plan for Brexit in any detail.
The sheer volume of small suppliers, sub-contractors and self-employed labour active in the supply chain means that it will often be more practical for the client (especially a public sector client) to take the initiative in assessing readiness for Brexit in respect of current and planned construction projects.
The following suggestions can help create a culture of open communication and better position your projects to withstand the fallout from Brexit negotiations and succeed in whatever world lies beyond.
Current construction projects
Consider these practical issues with your construction team:
- What proportion of the labour force is sourced from the EU?
- What materials are being sourced from the EU?
- How might programming be affected by these issues?
- Can materials and/or labour supply chains be changed in any way to improve the position?
- Is the project likely to be hit by adverse currency fluctuations or tariff changes?
- Assess the finances of those in the supply chain. How might they be affected by, say, delay? Can you improve the speed of payment down the chain to reduce the chances of a supplier getting into cash flow difficulties?
- If you haven't already, start "what if" discussions with others involved – especially between client and main contractor. Brainstorm possible scenarios together. For example, could the logistics warnings outlined in the government's Operation Yellowhammer paper affect your project? How? What might you all do about it?
- What does the relevant contract say about Brexit, if anything? Note that force majeure clauses are unlikely to help unless they (or other clauses) specifically refer to the effect of leaving the EU.
Future projects
Longer term, strategies for future projects can be considered so as to minimise Brexit-related disruption. For example:
- Sourcing materials etc. from within the UK;
- Allowing time (or float) in the programme for possible logistical delays;
- Allowing in a contract for the possibility of renegotiating its terms if there is an unforeseen change in the law (care needed in the drafting of this);
- Considering switching to suppliers with more financial strength, just in case;
- Looking for solutions that require less labour (or maybe less skilled labour) in case of a workforce shortage;
- For frameworks – changes may be required if the supply chain capacity looks likely to reduce.
- Taking measures to hedge against currency / tariff fluctuation.
In short, none of us know exactly how the UK's exit from the EU will affect the construction industry. However, planning collaboratively to ride out worst-case scenarios may be better than a "wait and see" approach. Much can be done to strengthen the positions both of clients (public sector or otherwise) and construction sector businesses for the months (and years) ahead.
This article has been co-written by Ed McMullen and Marian Harris-Deans. If you need expert advice on construction projects, please contact our Construction Law team.
