How will Brexit impact on Construction?

Francis Ho, Head of Construction | Thursday, 8 September 2016
francis.ho@olswang.com | +44 20 7067 3505 | @fkyh
IBC Construction Law Summer School 2016
How will Brexit impact on
Construction?

|
The European Union
#2
• Created in 1958 by Treaty of Rome (EEC)
• 28 Member States
• Largest importer and exporter in the world
• Single market with Four Freedoms:
• People
• Goods
• Services
• Capital
• Customs union
• Represents its Member States in the World Trade Organisation
www.constructiveblog.com

|
The United Kingdom’s relationship
#3
• EU Member since 1973
• Second largest economy in EU (pre-Referendum)
• Conservative Party manifesto pledge for 2015 General Election to hold
Referendum on EU membership
• Referendum vote on 23 June 2016
• Outcome not legally binding but Government promised to abide by result

|
United Kingdom European Union membership referendum
4
Should the United Kingdom remain a member of the European Union
or leave the European Union?
Leave
Remain
33,551,983 VALID VOTES

|
Voting comparison by major regions
5
0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
16,000,000
England Scotland Wales NI London
Chart Title
Remain Leave

|
What has happened since the Referendum?
#6
• New Prime Minister and Government
• Housebuilders stocks have crumbled (but recovered strongly)
• Pound near 30-year low; substantial declines against dollar and euro
• Interest rates cut to 0.25%
• Japanese Government warns UK could lose European HQs
… And no formal discussions with EU on Brexit

|
What’s next for the UK?
#7
• Prime Minister May: “Brexit means Brexit”
• No one knows what form Brexit will take
• Government proposes to issue notification under Article 50 of Lisbon Treaty in 2017
• Two years to negotiate withdrawal from EU
• UK and European Council can extend deadline
• If no agreement reached by deadline, EU treaties cease to apply
• Meanwhile UK remains Member State and bound by EU rules
• Upon exit Parliament repeals European Communities Act 1972
• “Soft” or “hard” Brexit?

|
Possible post-EU landscape
#8
• European Free Trade Area (EFTA) member
• Swiss model
• Some access to single market (but not many services); financial contribution
• Bilateral agreements with EU
• Some harmonisation still necessary to trade with EU
• European Economic Area (EEA) member
• Norwegian model
• Access to single market; financial contribution
• Compliance with EU laws; no say over them
• Four Freedoms

|
Possible post-EU landscape
#9
• EU Customs Union
• Turkish model
• Free movement of goods
• Does not cover services, public procurement or agricultural goods
• Compliance with some EU standards necessary
• Bespoke arrangement
• UK joins World Trade Organization with access to EU through WTO rules (US model)
• Canadian model
• Neither is without problems

|
Relationship between UK law and EU law
#10
• EU law considered to take precedence under ECA 1972
• EU law covers environment, health and safety, energy, transport, agriculture,
immigration, consumer rights and other areas
• EU treaties and regulations have direct effect in UK
• EU directives must be transposed – as UK statutes or statutory regulations
• UK law must be compatible with EU law
• Some areas of UK law, by choice, reflect EU principles, e.g. UK competition law

|
Consequences for construction from Brexit
#11
Domestic demand for construction
• Construction industry has already contracted amid uncertainty
• Markit and CIPS PMI: 46 (June), 45.9 (July); 49.2 (August)
• End to “passporting” and data protection issues could cripple City of London
• Universities may be affected by loss of EU research funding and EU students
• EU investors may be put off investment but fall in pound may attract others
Workforce, goods and materials
• Status of EU migrants? 12% of construction’s workers from overseas
• Need 224,000 new construction workers by 2019 (CIOB)
• 64% of materials sourced from EU (Germany, Italy, Sweden)
• Exporting to EU must still follow rules (Construction Products Regulation 2011)

|
Consequences for construction from Brexit
#12
Infrastructure
• Major infrastructure decisions delayed, e.g. Hinkley Point C, Heathrow/Gatwick
• However, seems like business as usual for Northern Powerhouse and HS2
• EIB invested €7.8 billion in 2015 (energy, telecoms, transport, water, construction)
• Loss of other EU funding, e.g. European Structural Investment Fund
Other
• Working hours regulations, TUPE
• Trade agreements to replace those negotiated by EU
• EU State Aid rules no longer apply
• Brexit contagion

|
What about construction contracts now?
#13
• No change in law following EU Referendum prior to Brexit
• Impact of Brexit may need to be considered for long-term contracts
Commercial impact
• Currency fluctuation clauses to deal with sterling’s devaluation
• Insurance policies with sterling limits may also need increase for overseas projects
• With industry contracting, risk of more insolvencies and disputes?
• Change in law clauses
• Will we see return to single-stage tendering?

|
What about construction contracts following Brexit?
#14
• Will UK reduce “red tape”?
• “Recast” Brussels Convention ceases to apply
• Deals with issues of jurisdiction between EU Member States
• Recognition and enforcement of civil and commercial judgments
• EEO (fast-track procedure for uncontested claims) ceases to apply
• Might this encourage arbitration instead of courts for contracts with EU parties?
• VAT may be reformed/abolished
• May still need to harmonise with EU to avoid double taxation/double non-taxation

|
Opportunities from Brexit
#15
• Undersupply of homes in the UK and overseas demand for London prime means
housing market remains strong
• Flexibility to reduce/eliminate VAT to encourage construction activity
• Take advantage of sterling’s devaluation to sell services and construction products
overseas
• Concentrate on new means to compete internationally, e.g. through cutting edge
research and technology such as BIM
• UK may finally address skills shortage and encourage more young people and
women into industry

| www.constructiveblog.com#16
An electronic version of these slides can be
downloaded from:
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•For more information
•please contact:
Brussels
+32 2 647 4772
London
+44 20 7067 3000
Madrid
+34 91 187 1920
Munich
+49 89 203 031 300
Paris
+33 17 091 8720
Singapore
+65 6720 8278
Thames Valley
+44 20 7067 3000
Olswang:
Changing Business.
www.olswang.com
Francis Ho
+44 20 7067 3505
francis.ho@olswang.com
22032387

How will Brexit impact on Construction?

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