Brexit Is Already Impacting Construction Contracts

With less than five months to go until the UK officially leaves the EU, Brexit issues and concerns are now regularly featuring in construction contract negotiations.

Since the result of the 2016 referendum, the potential impact of labour shortages and costs of materials have been widely discussed.

As regards workforce, the UK construction industry relies very heavily on migrant workers. These would be split by skilled and unskilled, with a significant proportion of them being workers coming from the EU.

And as regards tariffs, tariff-free trade is a key factor in the UK construction sector’s ability to deliver projects within reasonable budgets.

Brexit could result in a reduction to the workforce available to the UK construction sector. Along with this, if the UK leaves the EU without the ability to trade with the EU (and other countries) on a tariff-free basis, then the impact on both costs and deliverability of projects could be a major problem.

This will be a huge source of frustration for construction, given the government’s commitments to deliver housing and key infrastructure projects. As well as the private sector’s opportunity to take advantage of property development opportunities.

It is therefore no surprise, that construction contracts currently under negotiation are seeing a greater than ever focus on Brexit implications.

The problem is (and this has been the theme of 2018) that nobody actually knows what Brexit will look like. Hard or soft borders? Trade deals or no trade deals? So whilst there is growing concern over the continuing uncertainty, there can’t really be any answers until the picture becomes clearer.

So for the moment, contract negotiation on Brexit type issues has really centred on who takes the risk.

Changes in law are often risks that are borne by the employer or developer. Most standard contracts provide a format for dealing with this. But as it becomes more and more likely that changes in law will inevitably take place post Brexit, developers are looking for contractors to share some of that risk with them. The rationale being that these are not really unforeseeable changes in law now, but rather changes in law that are highly likely.

Watch this space – we will report more when the situation becomes a little clearer.