Key legal Brexit issues for construction and infrastructure businesses
"Brexit means Brexit" according to Theresa May. But although the Government has now indicated that it is committed to Brexit and achieving the best possible outcome for the UK, no-one knows what form this will take or how long it will take to achieve.
Uncertainties about the future challenge every sphere of the construction industry. As key employers and major contributors to British life and its economy, the industry's leaders, from politicians to plc. board members to SME directors, must take action to weather the gathering storm.
Businesses cannot afford to wait for decisions on how the UK will effect Brexit following the referendum “leave” vote. While our political parties regroup and tentative approaches are made about potential trade deals, each business must do its best to assess the risks of Brexit now – and then manage them.
For many, the next couple of years will present challenges. We must all keep a sharp eye on the economy and government policy and action. We must evaluate the risks Brexit would pose for our businesses and put in place contingency plans to deal with – and benefit from – Brexit.
We flag up below a series of issues, questions and action points for you to consider. If you want to discuss any of these, get in touch with your usual contact in Dentons' UK Construction team, or contact one of the "Key contacts" listed here.
For more background to the construction issues and to read about some of the procedures involved in Brexit, see The Great Brexit Debate.
- A chance to discuss the issues
- Summary/overview: assess the risks for your business
- Staffing issues
- Future trade agreements could have a direct effect on your trade
- What about your existing contracts and negotiating future contracts?
- Review and adapt your procurement processes
- Resolving disputes
- And finally, keep calm … and stay up to date
A chance to discuss the issues
After the Chancellor of the Exchequer's 2016 Autumn Statement, we will be holding a round table event with some of our clients’ senior management to discuss the challenges that Brexit poses for construction and infrastructure businesses.
If you would like to attend that session, please contact one of our "Key Contacts" listed here.
Summary/overview: assess the risks for your business
Undertake a risk assessment to analyse the risks Brexit poses for your business:
- How might Brexit affect your current and planned projects?
- How will you deal with fluctuating exchange rates, stock market volatility and the prospect of losing funding or not finding investors?
- Do your contract terms cover your business after Brexit takes effect? Will your contracts survive Brexit?
- What will happen if key laws and regulations change during the course of your contracts? Will you be able to obtain the right licences, authorisations, permissions? Will you be able to enforce court judgments?
- Do you need to set aside contingency funds to cover wasted costs incurred through lost time and money spent on abandoned projects?
- How would your pricing mechanisms cope with the introduction of "barriers to trade" such as tariffs or quotas or restrictions on freedom of movement? Will you be able to staff your projects?
- How exposed are your suppliers or counterparties to Brexit? Could they, for example, be affected by changes to the regulatory environment, restrictions on immigration, new tariffs or adverse economic conditions? Will their liquidity be affected and should additional performance security be sought?
Consider how you will staff your business operations and projects if the right to freedom of movement is withdrawn or restricted:
- Can you still meet the skills requirements over the project life-span? Work closely with your human resources team and review your staffing requirements thoroughly for each project in the short and medium term. Prepare an emergency plan to deal with the possible loss of the right to freedom of movement in the EU.
- In particular, analyse your current and short to medium term skilled labour requirements. Where is that labour sourced from? How would you replace them if affected by a loss of freedom of movement?
- How many of your current staff might be affected by any change to the right to freedom of movement? How many of them do you categorise as core/essential workers? How easy would it be to obtain visas for them?
- What plans do you have in place to train people to fill potential skills shortages? (And is there a budget for this?)
Future trade agreements could have a direct effect on your trade
- Given the uncertainty about the nature of future trade agreements, businesses should monitor the Government's negotiations. The UK's trading relationship with the EU will dictate whether tariffs or other trade restrictions are introduced.
- Stay tuned to the Government's policy approach to EU law. During the looming trade negotiations, the Government might decide to accept compliance with some or all of the EU rules and regulations in order to preserve other rights such as free trade and/or workers' freedom of movement.
- If the Government chooses to repeal or amend some of the extensive EU laws applicable in the UK (such as those affecting health and safety and the environment), your trade could be affected: EU businesses might not trade with you if you do not have to adhere to EU regulations.
- Identify which UK laws originating from the EU are essential for your business and explain to your trade bodies and local MPs why they should remain in place – or be changed. Make your views clear. You might, for example, want to lobby for changes to those regulations you perceive as adding unnecessary "red-tape" to projects. (Be aware that there could be resistance to changing long-adopted laws that have improved the workplace such as discrimination laws and the working time regulations.)
What about your existing contracts and negotiating future contracts?
- It is almost impossible to predict with any certainty the potential legal effects of Brexit on contracts. Given this uncertainty, contracting parties should review existing contracts to ensure that Brexit and a change in trading agreements do not undermine their current legal protections.
- Check whether you have a fluctuations clause in your contract and whether it covers exchange rates as well as inflation. If yes, take steps to renegotiate contract prices. If not, ensure your strategic planning teams factor into their current and future project planning the likelihood of further exchange rate fluctuations.
- Future contracts should be drafted to survive any future changes to English law consequent on Brexit. Key clauses to review include: governing law, choice of court, change in law, fluctuations (see above), termination, force majeure and material adverse change, service of proceedings and enforcement of judgments, intellectual property and data protection. Consider also the intended term of the agreement and whether the effect of Brexit is of sufficient concern to merit including specific Brexit provisions, such as a break clause or the ability to terminate in a specific Brexit-related scenario, or the ability for the parties to renegotiate the contract in certain circumstances.
- Brexit may also affect the way you choose to resolve your disputes. Contracting parties should rethink their approach to dispute resolution clauses to ensure that the choices they make will still offer the best dispute resolution procedures after Brexit.
Review and adapt your procurement processes
- Introduce Brexit contingency planning as early as possible into your procurement processes.
- Train your procurement team on what issues to look for and what risks to guard against.
- If you are in the middle of a dispute or considering litigation, bear in mind that Brexit may affect the law applicable to your contracts, jurisdiction for the dispute and the international enforcement of judgment arrangements.
And finally, keep calm … and stay up to date
The route to achieving Brexit and the form that it will eventually take is not clear and is unlikely to be for some time yet. Stay up to date. Monitor political activity both in the UK and the EU. Keep up to date as the detail of the likely structure of Brexit emerges and as trade negotiations proceed.
In the maelstrom of the most significant political, economic, legal and social shift in recent times, keep the lines of communication open with your key managers, your employees, your commercial partners, your clients and advisers.