The rapidly approaching referendum on 23 June 2016 to decide whether to stay in or leave the European Union (EU) is an issue for all businesses. Uncertainty is one of the key concerns for the construction industry which relies on a steady flow of investment to keep the cash flow wheels turning. In addition, available manpower is already an issue for the industry – and the prospect of the removal of the right to the free movement of workers within the EU will send chills down the spines of many human resources teams.
A Brexit could therefore lead to "trouble" but the reality is that no one really knows what will happen if we vote to leave.
Our summary of issues for construction businesses was included in our recent briefing: "The Great Brexit Debate" and we have set it out below for ease of reference. The full briefing sets out the implications for the UK legal and regulatory framework and includes a section on the effects on the infrastructure sector including transport (railways, roads, airports and ports), water and sewerage, schools and hospitals.
The effects of Brexit: construction focus
From the construction industry perspective, a potential Brexit would have ramifications across a number of areas including:
There would be multiple employment law issues. For example, the introduction of labour market restrictions would likely mean fewer available skilled workers, an increase in wages and project costs and delays to projects. In addition, UK staff might not be able to move so freely to work on projects in Europe. It would also be worth considering how other EU laws such as those on working time regulations, disability and discrimination would be affected.
The uncertainty caused by Brexit will affect foreign and domestic investment in UK projects in the short term, at the very least.
Regulation and trade
The body of regulations governing procurement of projects across the UK and Europe would be likely to change, which might affect not just how tender processes are handled but, potentially, also the chances of success for UK bidders in Europe and the scope for encouraging EU businesses to bid for work in the UK. Trading with European partners and trading terms and conditions would be affected, not just in terms of export and import tax but also in how they might be affected by international trade agreements negotiated after Brexit. There may be a very significant increase in costs of imported material—in particular steel—due to the weakening of the pound.
Contracts and dispute resolution
Contracts already in place would need to be reviewed to ensure that Brexit did not fundamentally change the nature of the agreement, and renegotiation might be needed to ensure Brexit did not lead to contract frustration. Parties to contracts would have to reconsider terms dealing with dispute resolution, jurisdiction and choice of court, service of proceedings and enforcement of judgments. A substantial body of EU law that affects construction businesses is already enshrined in UK law, for example the CDM Regulations and the Building Regulations. While these laws would be unlikely to change in the shorter term, changes, for example to reduce perceived “red tape”, would be inevitable.