UK: Brexit: What Could It Mean For The Construction Industry?

Summary and implications

Any assessment of the impact of Brexit requires a degree of crystal ball gazing: its impact is very uncertain and will remain so for years. Brexit's effect on the construction industry (as with the wider economy) will depend, amongst other things, on whether the UK retains access to the single market, the nature of any new trade deals negotiated, immigration policies, interest rates, government borrowing costs and sterling's volatility. In spite of (and because of) these uncertainties, we have highlighted some key considerations for the construction industry.

Procurement

Critics of the EU often cite its red tape as an inhibitor of business. EU procurement law is particularly criticised for its cumbersome lack of flexibility, which requires contracts to be subjected to a competitive tender process, even when an awarding body has legitimate reasons for wanting to work with a particular party.

Whether the UK could do away with EU procurement law will of course depend upon the precise terms of its withdrawal. However, anyone hoping to see the abolition of procurement regulation is likely to be disappointed. Even if the terms of the UK's exit allow it to abandon EU law, it is a member of the World Trade Organisation and a signatory to the Government Procurement Agreement, whose rules broadly require transparency and the ability for procurement decisions to be impartially reviewed. In addition to this, the UK is leading the way in anti-corruption initiatives, including the use of Open Data Contracting Standards, in which all tender documents are made publicly available for the duration of a project's life. It is therefore highly unlikely that leaving the EU will see the end of public procurement law, though there may be some streamlining of the process.

Supply chain

Projects which have already been procured are likely to have been tendered on the assumption that there would be no tariffs imposed on the import of materials from the EU. Should this change, it could add significant cost to a project; however, as it will take a minimum of two years to leave the EU, this could only affect longer-term projects. It is also worth noting that sterling's volatility could adversely affect the cost of materials.

For these reasons, businesses should be mindful of potential tariffs and currency when procuring and tendering projects and when drafting associated documentation.

Change of law clauses

In publically procured contracts, it is typical for the government entity to bear some responsibility for changes in law that affect the contract, save to the extent that they are "general" changes affecting business generally in the UK.

Although Brexit is likely to impact the whole nation equally, businesses should consider protecting their position by advocating that responsibility for any changes in law occasioned by Brexit is borne by the government entity. Whilst it may be difficult to achieve this for all changes resulting from Brexit, it should be possible to identify particularly important laws/ regulations that would have a material impact on the contract or the parties.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.