Brexit and the Construction Sector
As featured in the Daily Record’s Business Insider, construction partner and contract law specialist Neil Kelly, discusses the impact of Brexit on the Construction Sector.
Surveys before the EU Referendum indicated that those in management positions in the construction sector were overwhelmingly in favour of the UK remaining part of the EU, with one survey putting support for Brexit as low as 15 per cent.
Among the notable exceptions was Lord Bamford, the Chairman of JCB.
Now the decision has been taken to leave the EU, what are the main challenges and opportunities for the construction sector?
Even before the Brexit decision, much was being said about the lack of both unskilled and skilled labour in the UK construction sector – the free movement of labour between the UK and the other EU member states was seen as very valuable to the industry.
The Brexit vote is now leading to concerns that free movement of persons and thus of unskilled/skilled workers may be restricted with more (complex) immigration laws, and employers and workers will need to understand these.
Another concern is that skilled workers who have experience throughout the EU may not bring that experience to the UK and may be more inclined to go elsewhere in the EU.
This could result in labour shortages which may increase construction costs.
That position may however encourage a greater number of UK apprenticeships.
Construction professionals such as engineers and architects may also be adversely affected by Brexit, but some argue that UK professionals may get a larger slice of work in the UK construction market.
Access to materials and plant used in the construction process
The EU simplifies the importation of goods and materials from other EU states.
Upon Brexit, different opportunities may become available to resource from non-EU countries and these will have to be grasped if that will minimise costs to the sector.
Different and more varied contractual arrangements and technical standards may also have to be employed.
Reduction in investment in construction
Brexit will mean loss of access to funds such as the European Structural Investment Fund.
The UK is understood to be one of the main beneficiaries from such EU funding schemes.
The lost funding may be made up by the UK / Scottish governments or other sources, but there will be uncertainty until the post-exit position becomes clearer.
For example, Standard Life has recently stopped withdrawals from its UK Real Estate Fund (a £2.9 billion fund which invests in commercial properties including shopping centres and offices) due to the level of withdrawals after the Brexit vote.
At a time when investment in the construction industry was just recovering after the recession, the key challenge will be to create the conditions which will encourage more private as well as public financing of construction work.
Working conditions and practices
Working conditions and practices in the UK are regulated by the EU across a whole host of areas, such as working hours.
The construction sector is a very big employer and while much regulation may be kept in place after withdrawal, it is not clear which things will change and how.
Employers and employees will have to understand any legal changes and the effect these will have on working conditions.
It is important to remember that the effect of Brexit will not just be felt by those directly involved in the construction industry.
It will also be felt by all those who rely on the sector indirectly, for example, the cost of construction operations may increase.
Employers will try to keep costs down while contractors are likely to be even more risk averse on costs until the post-exit picture becomes clearer.
This may prejudice projects getting off the ground altogether or call for novel funding arrangements /contractual drafting.
In the middle of 2016 there were some signs that the Scottish construction industry might be doing better than other parts of the UK sector which is strongly influenced by the London/ South East market.
What Scotland’s position will be after the UK Brexit vote is far from clear at the time of writing as discussions continue between the UK and Scottish governments.
In general, life outside the EU will present the construction sector with opportunities as well as challenges, but the immediate effect of the vote to leave the EU on the construction industry is a degree of uncertainty which may continue until the conditions of withdrawal become clearer.
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