The future of the construction industry post-Brexit

35167877 - construction siteAdrian Bell, partner and solicitor advocate in the energy, projects and construction disputes team at CMS Cameron McKenna, explores the implications of the UK’s vote to leave the EU on the construction industry and looks at developments that have occurred following Brexit.

How will Brexit impact on the construction sector—both short and long term?

Brexit has already had an impact on the construction industry. As shown by the suspension in trading earlier this month by Aviva, Standard Life and M&G Real Estate property funds, the immediate impact of the Brexit announcement was a rush of monetary withdrawals by international project funders who were concerned by the uncertainty and the decrease in the value of the pound. Many other private investors with projects in the pipeline are likely to postpone decisions until after EU-UK agreements are negotiated, or at least until there is a road map of how matters will develop, which may to lead to a lull in activity.

It is unclear whether this short-term concern is likely to lead to long-term issues, although uncertainty tends only to reduce business opportunities. While predicting the impact involves a certain amount of crystal ball gazing, the most high-profile result of Brexit is the potential restrictions on the free movement of people and goods. Depending on the treaties agreed with the EU, and associated tax breaks, the price of necessary materials may rise, pushing up the costs of projects. In terms of labour, the construction industry in the UK is heavily reliant upon foreign workers, and any restrictions are likely to lead to increased costs, for example in organising visas or considering workers from other markets. In the short-term, pre-Brexit, however, there may be an influx of EU migrants moving to the UK, which could increase the supply of labour and reduce costs.

How will public projects be impacted?

The UK is a main shareholder in the European Investment Bank (EIB), which provides finance to public projects around Europe, for example in relation to infrastructure, energy, social housing and education. For example, Anglian Water is currently negotiating £400m of funding from the EIB, and last year alone the EIB invested £5.6bn in public projects the UK. It is unclear whether the UK will remain a shareholder in the EIB after it leaves the EU (see LNB News 28/06/2016 182)—if not this could lead to the loss of access to such funds. Prime Minister, Theresa May has already pledged Treasury backing for new projects and the launch of infrastructure bonds in an attempt to alleviate concern (see LNB News 12/07/2016 115), yet it is unclear whether this will be enough to make up the shortfall and reduce a negative impact on infrastructure projects.

Will there be any impact on construction law affecting these sectors in the UK?

Fortunately for the UK construction industry, key pieces of legislation such as the Housing Grants, Construction and Regeneration Act 1996 and the Scheme for Construction Contracts (England and Wales) Regulations 1998, SI 1998/648 are domestic and are unlikely to be affected by Brexit. The largest legislative impact is likely to be felt in relation to public procurement, the procedures for which are largely prescribed by EU law. While the extent of any impact would depend on whether current legislation is repealed or amended, it may lead to greater flexibility in terms of procurement structures and tendering.

What action should those in the construction industry be taking?

It is important for clients to review their key contracts to ensure that clauses concerning material changes to legislation are not at risk of being triggered, and assess the likely impact that changes to regulation and funding may have on their projects and businesses generally.

In any event, it is important to remember that there is no clear guide as to how EU-UK negotiations will be conducted or how the economy will be affected. Both lawyers and clients should therefore remain both risk adverse and cautiously optimistic.

Interviewed by Nicola Laver.The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

Filed Under: Construction

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