The Brexit/Covid double whammy for construction

9 October, 2020
by: Cripps Pemberton Greenish

With the majority of the construction industry still scrambling to ‘steady the ship’ thanks to the fall-out from Covid this year, it feels as if the end of the transition period on 31 December 2020 hasn’t yet regained the attention that it deserves.

This is understandable: the ramifications of Covid on existing projects is more immediate and therefore more urgent to the cashflows of contractors and developers. I also suspect some ‘Brexit-fatigue’ has set in, with seemingly no end in sight to the constant speculation on whether or not a deal will be struck between the UK government and the EU. Perhaps once there is an answer on this, the industry will begin to mobilise again to protect itself from the risks posed by whatever the result from the negotiations is.

In the meantime, it’s been interesting to note the common themes between Brexit and Covid on construction contracts, how both events are likely to impact them and how parties expect to deal with them. Certainly, it appears most contractors are now au fait with requesting specific wording in their contracts to request a specific relevant event be included to cover the impact of Covid on the ability to source materials and deal with issues relating to shortages in labour. Interestingly, the tendency to request a similar clause in relation to Brexit seemed to tail off during the first wave of Covid. How increased costs due to Covid are dealt with in new construction contracts now seems to vary from project to project and depends on the nature of the works, as well as the materials being used.

Brexit is likely to raise similar challenges to Covid (in terms of potential delays due to shortages in labour and increased costs of materials). Social distancing and self-isolation issues have meant a shortage of workers on sites during the pandemic.

It is commonly accepted now that Brexit will result in shortages of both skilled and (critically) unskilled labour and it doesn’t appear that any of the trade agreements the UK has agreed so far with other countries ameliorates this issue. With both issues impacting sites at the same time, this does not appear to bode well and all parties should be looking closely at how this can be dealt with within their contract terms (as well as looking closely at programmes and how realistic they are in this ‘double whammy’ scenario).

Similarly, with costs of some materials (such as plaster) going up due to social distancing within factories, output lowering and demand and prices increasing as a result, these higher prices may be hit further by tariffs being imposed on materials coming in to the UK after 31 December 2020. This presumably makes the job of contractors tendering accurately for projects next year incredibly hard.  There seems to be no industry standard position yet on how these costs will be split between employers and contractors.

Will employers expect beleaguered contractors to take the risk of cost increases for materials post Brexit? And, if so, is this a responsible, long term expectation to take from those with a direct interest in ensuring we have an industry that is sustainable in the next few, bumpy years?

The next few months will certainly be interesting.