The Impact of Brexit on the Construction Industry – an overview
On the 24 December 2020, the European Union (EU) and the United Kingdom finally agreed a post-Brexit trade agreement, the Trade and Cooperation Agreement (TCA), which came into effect on 1 January 2021.
In the years following the 2016 Brexit referendum, the construction industry has had to grapple with a number of challenges. In addition to Brexit, the fallout from the collapse of Carillion, skills shortages, and ongoing challenges imposed by COVID-19 are just a few examples. When assessing the impact of Brexit, it is important to do so in light of these pressures.
Despite the uncertainties, there are signs that fundamental change is happening within the industry. The shift towards offsite manufacturing, the increasing use of digital technologies and the growing urgency to address climate change, will hopefully result in increased collaboration and the creation of a more sustainable industry.
Construction Products and Materials
The TCA has introduced measures that attempt to ease restrictions on the flow of goods between the UK and the EU following Brexit. Despite these measures, increased customs checks, double product conformity assessments and restrictions on products, which do not originate from the UK or the EU, are likely to slow the progress of construction projects. Parties operating within the construction industry are also likely to incur additional costs due to delays in relation to goods and materials.
With large quantities of building materials currently imported and exported from the EU, parties will need to take into consideration the additional costs from duties, or the possibility that there might be limits on quantities of goods imported into the UK.
The restrictions on the freedom of movement of people will be felt widely across the construction industry. The new points-based immigration system, introduced by the TCA, is likely to exclude roles such general labourers. With the UK already suffering from skills shortages and around 37% of London’s construction workforce coming from EU countries, project costs could be driven up, if the demand for labour outstrips supply.
The UK’s procurement legislation is based on overarching EU Procurement Directives, which remain in force following Brexit. Despite this, there has been some consequential amendments to UK regulations. One notable example is the removal of references to notices being published in the ‘Official Journal of the EU’ and the introduction of the new ‘Find a Tender Service’ notification system.
The above examples are just a few ways in which Brexit is likely to result in additional costs, delays and challenges for the construction industry. In light of the agreed position under the TCA, parties should check existing contracts for potential exposure to additional costs or penalties for unexpected delays. Parties should consider any change in law provisions, force majeure/frustration provisions, fluctuation provisions, termination provisions and dispute resolution provisions under existing contracts to see where the commercial risk lies.
When negotiating new contracts, parties may wish to consider specific contractual provisions dealing with Brexit related risks. Contractors will need to look at ways of balancing the uncertainty around financial risks and the need to win work. Moreover, employers will need to weigh up the need for cost certainty against their risk exposure.
Opportunity for collaboration
The environment in which the construction industry operates will undergo significant change in light of Brexit and the TCA. By their very nature, construction contracts are concerned with risk allocation and will need to be alive to new risks posed after 1 January 2021.
Brexit, along with the other ongoing challenges faced by the construction industry, will alter the appetite of contracting parties to take on risk and may result in difficulties in parties reaching a mutually acceptable deal. As such, it will become even more important that all parties in the industry operate on a collaborative basis and ensure that there is an ongoing dialogue to work through risks together.