Brexit – Construction Industry Implications

Two weeks on, as the World settles into the new reality that is life after the Referendum, a plethora of questions remain over the impact of Brexit on the UK and EU economies. And as an industry that relies heavily on the EU for investment, labour and supplies, the construction sector is posed to be dramatically impacted.

The devaluation of the pound, the substantial drops in the share price of many of the UK’s main home builders and construction contractors, the closing for redemption of numerous property funds and the threats from banks and other major organisations to relocate to various European locations are but a few of the factors that are making investors think long and hard about existing and future UK developments. As for infrastructure projects, these are of course heavily dependent on the country’s economic state not to mention the strategy of a new government, of which there will not be certainty for some months to come.

Of course some commentators argue that it is not all doom and gloom, pointing to the systematic under-supply of affordable housing and the domestic nature of the UK construction sector. However, whether projects can and/or will now be delivered hinges not only on funding but also on two other key elements: labour and supplies.

Pre-Brexit, the construction sector struggled with a lack of skilled labour, being an industry well known for reliance on foreign labour. While accepted opinion is that the UK government is unlikely to send EU workers ‘home’, the uncertainty of the situation will undoubtedly give many foreign workers pause to consider whether they can or even want to remain in the UK following Brexit. The knock-on effect of a lack of skilled labour could result in projects being either delayed, being over budget or both.

Similarly, as sterling drops, the cost of importing supplies for projects will increase. While contractors with great foresight might have secured fixed sterling prices with their suppliers and/or agreeable fluctuation options within their contracts, those which have not may be unable to bear the consequences of sterling’s devaluation.

Where contractors have no ability to remedy increases in supply or labour costs, an employer might find itself having to renegotiate contract terms or face the undesirable consequences of a dispute or even worse, an insolvent contractor. For projects currently being tendered, the increased costs will surely be passed onto employers.

For contractors, a slowdown in the market might result in employers being unable to obtain continued financing, and thus an inability to pay their contractors.

While nothing is certain (save death and taxes and uncertainty), it does seem prudent for parties to take steps now and consider what, if anything, can and should be done in respect of both existing and planned projects. Over the course of the next few blogs we will look in more detail at topics such as contract variation and termination, dispute resolution and recourse to collateral warranties as well as pre-contract matters such as bonds, retentions and fluctuations.

For further information regarding this topic or any other property and construction matter, please contact Brenna Baye – Associate, or any member of Edwin Coe Construction team.

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