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

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

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.

 

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About the author:
Sarah Schütte is an independent UK-qualified solicitor-advocate and runs her own legal and training consultancy, Schutte Consulting Limited, based in London, UK, whose motto is "Making law work for the construction and engineering industry". Sarah has 19 years’ experience as a specialist infrastructure lawyer, including 12 years working directly for industry. She has developed a niche practice in project management, project controls and the law (PPM and P3M and PMO). She works with clients, contractors, professionals and supply chain delivery partners as a whole life project advisor, and supports them with training workshops and project facilitation sessions. SCL’s clients are based in the UK, USA and South East Asia, in addition to close collaborations with organisations in several other countries. Sarah speaks French, German and Spanish as well as English. 
 
Sarah focuses on putting law in its practical and purposive context: she equips her clients with the accurate knowledge and essential skills for confident and competent contract management, which tangibly improve delivery outcomes. Sarah is a regular conference speaker and media commentator. She writes the “Industry Insight” column for LexisPSL UK, is accredited by several industry and ADR associations, and contributes probono to industry initiatives to promote excellence in project delivery and the use of technology to control risk and facilitate governance. She collaborates closely with global Chapters of the Project Management Institute (PMI) and the UK Association of Project Managers (APM). Since 2016, Sarah has chaired the UK User Group for a USA-centred global project controls software company.
 
Sarah’s professional interests include ethics, behavioural science and collaboration, and how projects are influenced by individual behaviour and organisational culture. Her site boots and hard hat are always to hand.