The result of the EU Referendum, on whether the UK remains or leaves the European Union, back in June 2016 came as a massive shock to many people; with the construction industry being no exception. The idea of the unknown has caused a feeling of concern throughout the country, with the value of the British pound plummeting dramatically shortly following the result. The UK Government are due to trigger Article 50 before the end of March, notifying the intention of Britain to withdraw from the EU and starting negotiations regarding their relationship. Whichever direction the negotiations take, it is inevitable that this will have a large and direct impact on the industry.
Trading Arrangements:
Arguably the largest impact Brexit will have on the industry is through the trading arrangements for goods and services. The country uses UK based manufacturers but the 4 largest markets for materials are China, Germany, Sweden and Italy. With 3 of these countries being part of the EU, there is a worry concerning the movement of goods with potentially higher costs and materials themselves being harder to procure. A 2010 survey completed by the Department for Business Innovation and Skills (now the Department for Business, Energy and Industrial Strategy) found that 64% of building materials were imported from the EU. The UK Government has not yet clarified which new trading arrangements will replace the free trade agreement currently held; we can only hope that this will not impact too much on import costs.
Furthermore, the construction industry relies heavily on foreign skilled workers due to a labour shortage in the UK. With talks of a potential lockdown on freedom of movement between the EU and the UK, this could massively impact projects, with the lack of labour meaning companies will be forced to turn down work or increase programme lengths. There may be an opportunity to grant skills based workers a work permit but, as this will be harder to gain, it is likely that workers will opt for job opportunities in EU countries where getting work will be easier. Even with the rise of apprenticeships that are offering young people the chance to learn more skills in this area, the loss of freedom of movement of people between the UK and EU countries will massively impact the industry.
Funding for Public Projects:
Long term funding for infrastructure projects could also be interrupted as a result of Britain leaving the EU. The UK is a main shareholder in the European Investment Bank (EIB) which gives finance to public projects across Europe. In Britain, the jubilee line on the Underground in London, the Channel Tunnel and the expansion of the Liverpool port along with many other projects have all been funded by the EIB. Post Brexit, the UK may no longer be a shareholder leading to the loss of funding for many public projects across the country. This could lead to the abandonment of public projects due to lack of capital funding. Less projects being funded could have a massive impact on the industry, with more competition to design and manage projects. Since the results of the EU Referendum, any companies are also putting long term projects on hold due to the lack of uncertainty the referendum has caused.
The Official Journal of the European Union:
Leaving the EU will cause an end to following the rules and regulations of The Official Journal of the European Union (OJEU) which states that in public projects, if the value of contracts exceeds €100,000, a contract notice must be published in the OJEU. This gives potential bidders across the EU equal rights to tender, allowing UK companies to bid for EU contracts and vice versa. Many people believe that no longer having to abide by these rules and regulations is favourable due to the “box ticking nature” of the OJEU, which favours larger companies with previous experience on similar projects. It is also very time consuming, taking potentially up to 52 days to advertise contracts in this way.
Without these regulations, British public projects exceeding the maximum threshold no longer have to tender outside the EU, which could save a lot of time and money. However, a public procurement system will still need to be put in place. It is unclear at this point whether this could lead to a potential procurement system that is fair and efficient or whether a British version of the OJEU will be instigated.
Summary:
The knock on effect of Brexit will be dramatic across all areas of the industry. The cost of services and goods is likely to increase due to import and export costs and the potential loss of funding from the EIB could impact the future of public projects dramatically. There is likely to be no immediate change and it remains to be seen how this event will reflect the industry. The UK is the first country to consider leaving the EU meaning there is no possible way to predict the outcome of the country’s withdrawal. The relationship between the UK and the EU will be the determining factor in the outcome of the UK’s decision. Regardless of your opinion, it is up to us all to try and make this work. We can only wait and hope for the best across all industries.