The impact on UK construction will vary depending on the post-Brexit model the UK and the EU adopt. Predicting all of the possible impacts is difficult if not impossible but we have highlighted below some of the more likely impacts for UK consideration.
A “Leave” vote will not necessarily result in less regulation. By way of example:
- The Construction Design and Management Regulations 2015 which essentially enact EU Directive 1992/57/EEC and require certain minimum health and safety requirements in design and construction, are unlikely to be swept away. Health and safety is, rightly, here to stay.
- The Energy Performance of Buildings (Certificates and Inspections) (England and Wales) Regulations 2007 enacting EU Directive 2002/91/EC requiring Energy Performance Certificates for buildings is unlikely to be repealed: energy efficiency is again, an issue which is here to stay.
It would be surprising if, post-Brexit, the UK were not to impose some regulation on tendering and award of publicly funded projects. Equally, UK contractors tendering for work in the EU will be required to comply with EU procurement rules.
Access to foreign labour
Here we start to see the real impact of a “Leave” vote. The skill shortage within the UK construction industry and its heavy reliance on skilled labour from within the EU is a well-known concern. A restriction on the free movement of EU nationals will increase the demand for scarce domestic resource and put upward pressure on wages.
In the short to medium term, projects may be delayed due to the lack of necessary skilled labour and project costs will increase to reflect higher labour costs. In the longer term, the viability of undertaking large scale infrastructure projects may be put in jeopardy.
Imports and exports
The supply of goods and services for the construction industry is a key driver of growth in the UK and the UK is at least partially reliant on imports from the EU. The extent to which these may be affected will depend upon the post-Brexit model adopted.
A “Leave” vote is expected to lead to currency fluctuations. In an industry where margins can be tight, where there is heavy reliance on the import and export of goods and services, currency fluctuations can have a significant fiscal impact. Whereas the inclusion of exchange rate clauses in contracts is always a possibility (allowing for example, a renegotiation on price if an exchange rate fluctuates more than a specific number of percentage points), it does mean businesses may need to affect an additional level of strategizing, particularly in relation to exchange rate fluctuations, prior to planning or otherwise undertaking future construction projects.
Please also see the Contract and trading relationships section for more on contractual issues.
Access to finance
The availability of finance is often an important pre-requisite for construction projects. Currently as a member of the EU, UK small and medium sized enterprises (“SME”) have access to special programmes for SME financing. These will no longer be available following Brexit. If a “Leave” vote impacted on the UK’s creditworthiness the availability of financing could be reduced and/or more restrictive financing conditions could be imposed on borrowers and/or higher interest rates.