Brexit patchworking: the impact of continued uncertainty on the construction industry

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Here we are in May 2019, and, almost 3 years on, Brexit is still not sorted. Whatever your politics, you can’t help but feel “what a mess”. Industry is suffering from uncertainty, people and organisations cannot plan, budget or invest with confidence. This ripples right down from the biggest public and private investors to the smallest of SMEs, like mine.

As I have remarked before (see: The ongoing impact of Brexit on the construction industry), lack of certainty creates risk, and the construction and engineering industry looks far in advance when planning its projects, so those involved, whatever their perspective or tier, need to be able to plan. Without a coherent plan, and confidence in the plan, you simply cannot start to think to execute (let alone actually put a spade in the ground). There has never been a greater need for the ”foresight and stamina” I mentioned in that interview.  

In amongst all this uncertainty, I consider myself lucky in that, as an independent consultant to industry, I work on a wide variety of projects, with public and private clients and across broad sectors. The past 2 years I have advised on more infrastructure projects than ever before, and many are procured through NEC contracts, or on long term frameworks, where contracts are “called off” at the clients’ direction. These types of projects, and other “major” projects which are primarily for socio-economic benefit, cannot be stopped and started, except at great cost and hassle to all involved. They also have long durations and are either done or not done; a half-built railway, or school, is no good to anyone. They have a steady stream of public money and, for this amongst other reasons, must demonstrate “best value to the taxpayer”. By contrast, commercial projects (hotels, office blocks etc), being privately-funded, are more sensitive to financial investor confidence; one or two of mine have paused for strategic rethinking while the real estate market was fragile, and been taken up again as the market recovered. Now, for these projects, it is all about the £/SQFT,  the onward portfolio value, and the ability to spread the risk with, for example, multiple use occupation. 

Our entire industry relies heavily on labour, in particular the skills of EU nationals. My contractor clients and professional services clients (architects, engineers) have significant percentage of EU contract (freelance) labour, or employed staff. Jittery staff is not a recipe for a good project. It is entirely understandable and not of their, or their employer’s doing. And yet, day to day, they, and we, must manage it. 

On the ground, some of my clients have asked me to revise their Terms and Conditions to try to protect against the risk of Brexit. Recently, I wrote some optional clauses for a contractor to bind into its fee proposals. We will see how these work as they are rolled out on new jobs. In terms of contract negotiation, I am still seeing some attention being directly paid to Brexit, however it is very difficult when there is so much uncertainty, and it seems interest in thrashing out risk allocation is waning, and so we come back around to risk, foresight and proactive management. 

One subcontractor specialist has been stockpiling for months, spending a chunk of money on a warehouse to store its EU-derived kit.  Trying to get your Client to bear that cost has been difficult, and in some cases clients have refused. Others have been more sympathetic, and been grateful at my clients’ foresight in ensuring that the kit is available – albeit with an additional storage price - and most importantly, at no delay to the project; remember, whoever has the contractual risk, it is a practical problem. 

The current date of 31 October 2019 allows, on the one hand, some short-term preparations to be made to manage the UK’s exit (no deal or some deal, who knows) but on the other hand, extends the uncertainty too, into the medium term and is only an interim “patchwork solution”. 

Brexit means “horizon-“ or “vision-projects” are paying more attention to flexible sources of investment. This is to balance the risk of financial exposure to uncertain money markets, and, interestingly, is occurring in both public and private sectors. 

All in all, it is a cautious time for industry.

The views expressed by our Legal Analysis contributors are not necessarily those of the proprietor.

 

Filed Under: Construction

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