No-deal Brexit and Construction: three key challenges the sector will have to face

As the prospect of a no-deal Brexit becomes increasingly likely, bringing with it the WTO Rules as default trading position between the UK and the EU, we look at three major challenges which the construction sector will face and which you will have to manage in your business:

Major Brexit Challenge 1: Labour and skills scarcity and increasing cost:

The UK construction sector has a disproportionate dependence on migrant labour from within the EU in relation to low-skilled or un-skilled work. Many higher-skilled roles are also occupied by EU Nationals although the proportions are much lower. Overall in excess of 28% of the construction industry workforce originates from EU Member States.

Access to those markets will be very much more difficult following a no-deal exit. EU Nationals will no longer be able to travel freely to and work in the UK: they will require Visas and social care/ health care arrangements will not be as straight forward payment and tax regimes will have additional layers of approval and compliance requirements.

Not only will this add cost to the process, it will also increase scarcity of the resource, extend timelines for on-boarding and act as a practical deterrent.

The skills and labour shortage is also a double-whammy. Under a no-deal Brexit there is both the immediate hit and the gradual choke on delivery as growth in demand activity far outstrips supply.

Major Brexit issue 2: Construction materials – increasing lead times and cost

In an echo of its labour profile, the UK construction imports and exports huge amounts of  construction materials.

COVID has already ravaged “just in time” supply  chains taking advantage of rapid movements around the continent.

Play into that mix the many millions of additional Customs transactions required and queues of  thousands of trucks at the UK borders with the EU (effectively France and the Republic of Ireland) and the result is increasing structural delay and additional cost. Automatic Tariffs imposed under the WTO Rules will kick in adding a direct element to cost increases to compound the “delay/ disruption” impact.

Integrated and collaborative supply chains which are technologically robust will suffer least. The rest will either be on a fast learning and development curve or will encounter an almost vertical cliff face in the form of a bureaucratic, administration heavy market place with costs and demand soaring away.

Major Brexit issue 3: Quality and Standards – increased red tape = increased cost and delay

The aftermath of a no-deal Brexit would see the effective unpicking of EU-wide harmony in terms of quality benchmarks and approved standards. It would no longer automatically be the case that European Standards and the “CE” mark would be acceptable contractually or technically.

The accumulation of similar structural delays and additional cost is the logical impact.

Where do we go from here?

What to be looking at:

• How robust and resilient are your supply chains? Keep talking to your suppliers and review the terms and conditions of the contracts on which you are trading both up and down. Where possible, ensure you change those terms and conditions to protect your position as much as possible. Where you can’t change them, get a very clear understanding of your risk profile and liability so that you can manage and mitigate.
• Go through all of your current bids and tenders. Review your pricing, assumptions on lead times and costs. Again, if you have the opportunity, revise – if you don’t for whatever reason have that opportunity then have a clear overview of where the cost challenge hotspots are going to be.
• Revisit programmes to reassess any float and opportunities to strip out any false dependencies, any gaps in the logic and any other strategies for creating time.

There never was a more acute need to revisit your contracts to understand your risk and liability profile overall both to take the best advantage of your legal rights and entitlements and also to make the best use of the protections available to you.

Speak to David Vayro, Head of the Built Environments Projects Team at Primas Law on david.vayro@primaslaw.co.uk or call 07720 288850 or 0161 831 0202.