Law
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.
Economic Impact
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.
Disputes
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.
Conclusions
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.