This note considers some of the implications for the UK construction sector following Brexit.
While the UK remains a member of the EU the law relating to construction has not changed. If and when the UK actually leaves the EU (something which is at least two years away) parliament will have to decide which, if any, aspects of construction law that derive from the EU it wishes to change.
Construction specific EU law is minimal in any event, the most significant of which are the CDM regulations and certain energy performance requirements. There are also many harmonised European standards but it seems unlikely that amending construction specific legislation or standards will be very high up the government's list of priorities any time soon. Early general areas of focus of interest to construction and the wider infrastructure market will no doubt include public procurement regulations and the funding of public sector projects.
Of much greater, and immediate, concern are the economic implications for the industry. There has already been significant speculation about which sectors will be affected most strongly. In the private sector initial indications are that existing projects will continue and smaller schemes may be less affected.
For the public sector there is likely to be a short term hiatus while the new government gets to grips with the implications of Brexit and key departmental resources are reallocated to deal with EU exit negotiations. Initial indications are that in the medium to long term the need for infrastructure investment will be greater than ever (not least as an economic stimulus and to show the UK remains an attractive investment option) therefore the longer term impact could be neutral or even positive.
Practical Considerations for Construction Contracts
It is impossible to predict with any degree of certainty how construction contracts will need to be drafted to deal with a post-EU world. Much will depend on the EU exit terms yet to be negotiated. In the meantime, all parties to construction contracts should consider how best to allocate the risks generated by the current uncertainty and, ultimately, life outside the EU. This will include a review of contract terms dealing with changes of law, unavailability of skilled labour, increases in material prices, import duties and the possible application of force majeure provisions.
Brexit is likely to encourage more disputes in the short to medium term. Such significant changes in the economic climate can result in parties looking to withdraw from, change, or bring contracts to an early end. This could be exacerbated by a downturn in work available and increased competition in the supply chain. The previous recession saw a downturn in disputes but, generally, the supply chain and funders are now better capitalised which may lead to an increased willingness and ability to pursue disputes.
The specific legal implications for the UK construction industry are probably minimal. The biggest impact is likely to be the potential delay, cancellation or early termination of projects in the private and public sectors depending on how the economy recovers after the initial shockwaves. Longer term practical considerations such as the increased cost of importing materials and restricted access to skilled workers from the EU is likely to increase construction costs and reduce the capacity in the industry. However, everything depends on the terms of the deal the new government is able to cut with the EU, member states and non-member states as we head towards exit.