How will Brexit impact on Construction?

Francis Ho, Head of Construction | Thursday, 8 September [email protected] | +44 20 7067 3505 | @fkyh

IBC Construction Law Summer School 2016

How will Brexit impact on Construction?

http://www.linkedin.com/in/francis

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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


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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



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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

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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

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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



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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?



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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



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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



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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



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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)



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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



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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?



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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



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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



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Francis Ho

+44 20 7067 3505

[email protected]

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How will Brexit impact on Construction?

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