4 November 2020

BREXIT Brings Increased Risks for Construction Contracting a New Report Reveals

A report by NFB and Irwin Mitchell Aims To Help Sector Navigate ‘One Of The Most Testing Periods In Modern History’

Be it a deal or no deal Brexit, the National Federation of Builders (NFB) and national law firm Irwin Mitchell has identified key actions construction and building contractors should take now to avoid the worst implications of Brexit.

 

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‘Deal or No Deal – Issues Arising For the UK Construction Industry From Brexit’ offers practical advice for contraction and building contractors preparing for the end of the transition period on 31 December 2020. The report comes as the UK construction industry faces what the report describes as potentially ‘one of the most testing periods in modern history’ for a sector worth £106 billion and employing 2.2 million people.

 

The construction industry operates a delicate balance of managing risk and reward through careful project management and intelligent commercial thinking - a risk profile shown by the industry accounting for approximately 6% of UK GDP but a disproportionate 20% share of UK insolvencies.

 

Changes to the industry’s operational status quo as result of a ’Deal’ or ‘No Deal’ Brexit could therefore have a potentially detrimental impact on the industry and those operating within it.

 

The report identifies the measures the sector needs to take now in terms of supply chains, labour and contracts- the areas most likely to be impacted, regardless of whether any trade deal is agreed or not. Businesses should:

 

Supply Chains

  • Factor in margins to assist with pricing jobs, taking account of possible increases in the cost of raw materials and any tariff increases
  • Check to ensure the origin of imported products and materials is known
  • Establish how changes from 1 January 2021; and 1 January 2022 (when CE marking will no longer be applicable in the UK market) will be accommodated
  • Account for additional time for receiving imports due to new checks and customs controls
  • Plan and factor in how the possible changes could impact cash-flow
  • Establish main points of contact should disputes arise
  • Communicate effectively with the key players in the supply chain to establish how they intend to accommodate any changes.

 

Labour

  • Encourage EU staff to apply to remain in the UK
  • Explain what will happen if they lose the right to live and work here
  • Begin to look for home grown talent to fill vacancies
  •  Encourage young people to access training and employment routes into the construction sector in both the short and long term - using apprenticeship schemes and the Apprenticeship Levy

 

Contracts                                               

  • Consider the existing terms of current contracts, so the potential contractual consequences of a no-deal Brexit can be understood and (if possible) mitigated
  • Critically examine and (if possible) seek to negotiate the proposed terms, programmes and/or specifications and the like of future contracts in order to de-risk them.
  • Take notice of relevant areas of concern in contracts, including force majeure, warning notices, pricing clauses and currency fluctuations

 

James Butcher, head of policy and research at the NFB, said: “The report recognises the vulnerability of the construction sector to change, due to the reliance of professionals, suppliers and specialist on each other in any given project.

 

“The recommendations outlined in the report aim to help mitigate some of the potential impacts by encouraging an awareness of the impact on supply chains - from potential tariff increases to delays at the border for an industry heavily reliant in imported materials.

 

“The contactor usually bears the cost of any increased material costs in standard JCT contracts and knowing the cost of materials is vital to be able to tender competitively for contracts, so all the unknowns surrounding charges, taxes, quotas and tariffs represents a significant challenge.

 

“While much still remains unknown, planning now can help when considering the viability not just of existing projects but essential to be factored in when tendering for future work, this report helps the sector understand the risks and mitigations available and compliments the NFB’s support available to members.”

 

Mark Clinton, partner and specialist construction lawyer at Irwin Mitchell, said: “This report demonstrates there are still actions that contractors can take to mitigate the risks of a no deal Brexit, or a deal that still presents challenges to existing ways of working.

 

“Those in the supply chain will be experiencing similar concerns, so having conversations now is an important part of planning and will help reduce exposure to unexpected changes.

 

“There is going to be the inevitable increase in cost of bringing people from the EU to work in the UK and while this may ultimately lead to a search for home-grown talent, skilled new construction workers will not be found overnight. By encouraging any EU staff to apply to remain here now, some of these short term effects can be lessened.

 

“The impact of Brexit on any existing contracts should also be considered now and where there is any impact or reliance in EU trade, seek to understand the potential impact.

 

He continued, “While many contractors may be under the impression that a no-deal Brexit would be an event that would gain relief in terms of an extension of time or recovering loss or expense as a result, that is probably not the case. It is another one of those situations where the wording of clauses and amendments should be checked carefully and the time to do that really is now.”

 

The report concludes that all the uncertainty around a no-deal Brexit has the potential to undermine many construction businesses and those who work in the sector. Covid restrictions are still in place and these plus Brexit are a recipe for confusion.  However, by taking the steps outlined in the report, contractors can seek to mitigate risk and will have a better chance of avoiding the worst-case scenario, deal or no deal at the end of the transition period.

 

The report was compiled by James Butcher, Head of Policy and Research at the National Federation of Builders and Mark Clinton, Partner and National Head of Construction at Irwin Mitchell.

Contributors included James Mapley in the Irwin Mitchell construction team.

 

Read Full Report