Brexit: Changes for UK Construction
To the relief of many working in the UK construction sector, the UK signed an historic Trade and Cooperation Agreement (TCA) with the EU on 30th December 2020. The TCA ensures tariff-free trade between the UK and European trading block, but construction will have to come to terms with a host of new rules and regulations that will impact the procurement and delivery of projects.
Despite being described as a ‘thin’ deal by some, the broadly welcomed agreement reached with the EU will enable construction companies to continue to forecast the cost and availability of products and materials imported from the EU (or comprising components made in the EU). The inflationary shocks that would have ensued from tariff and quota introductions, as well as the expected currency depreciation associated with a no-deal, have been averted. The TCA delivers a certain degree of continuity that will help maintain the current cost levels of importing construction products and materials to the UK.
In addition, the mutual commitment by the UK and the EU to minimise technical trade barriers and an agreement on regulatory co-operation at the border will help to avoid some of the risks of delay and disruption. However, some administrative burdens will be unavoidable. These, along with additional checks at the border, are likely to increase the cost of moving construction products and materials across the border. Fortunately, the TCA includes various grace periods that will offer temporary relief as the new arrangements bed in. There is a 12-month grace period on some elements of ‘rules of origin’ declarations and full safety, and security declarations on construction products crossing the border will only have to be made from July 2021 onwards. However, once these end, the volume of paperwork required will increase and the risk of supply chain disruption will rise.
The deal, while delivering certainty around the future relationship between the UK and the EU, only contains vague commitments around trade in services. The lack of details around providing consultancy services, for example, remains a serious concern for construction and the exclusion financial services from the agreement is major risk to the health of the UK economy as a whole. With limited provisions on trade in services included in the TCA, we’re likely to see more segmentation and complexity which may ultimately result in restrictions and reduced market access.
There are also concerns around capacity problems at UK container ports. Although the recent capacity issues are thought to be largely COVID-related, stemming from disrupted container movement at ports since September and resulting in logistical logjams, it demonstrated just how quickly supply issues can cause delays, shortages and consequential price increases.
Although the most drastic disruption of a no-deal outcome has been avoided, in the coming weeks and months the complexities of the EU-UK trade agreement, and the impact it will have on the construction supply chain, will become clearer. Some of the key changes under the EU-UK Trade and Cooperation Agreement have been summarised below:
Goods and Standards
- The trade deal means there will be no tariffs, quotas or customs duties on goods exported to or imported from the EU (providing the goods meet the relevant rules of origin which set limits on the percentage of goods that can be made outside of the country of origin).
- There will be custom checks and controls at borders from 1st January 2021.
- However, the agreement between the UK and the EU aims to reduce these new administrative burdens and barriers on traders where possible, including through mutual recognition of ‘trusted trader’ (AEO) schemes. Trusted traders will benefit from simplified and streamlined customs processes.
- The EU and the UK have also agreed to explore the possibility of sharing import and export declaration data and to co-operate at ‘roll-on roll-off’ ports like Dover – reducing administrative burdens on business and possible delays.
- CE marked products (which indicate conformity with health, safety and environmental protection standards for products sold within the European Economic Area) will still be allowed in the UK market until 1st January 2022, but the intention is to end recognition of the CE mark by then (note: different rules apply to goods imported to or exported from Northern Ireland).
- A UK marking system will be introduced for products to be used in the UK market requiring conformity assessment by a UK-recognised approved body. It is hoped UK Conformity Assessed (UKCA) marking will align closely to the CE marking system to ensure goods pass the equivalent CE standard without the need to carry out further testing. However, without mutual recognition of standards, the industry will need to repeatedly seek certification for products for use in EU states. This is likely to increase manufacturers’ overheads and may reduce product choice.
- The additional cost and delays involved in restrictions on product origin, double-certification and border checks will need to be factored into the pricing and programming of projects. This is also likely to have significant impact on ‘just-in-time’ procurement, which could slow down progression on construction projects and add to costs.
Labour and Services
- From 1st January 2021, anyone wishing to come to work in the UK will be subject to a new global points-based application system.
- The new points-based system has been designed to attract ‘skilled workers’, ie those with skill level thresholds of RQF 3 or above (A-level or equivalent). Whilst this will include architects, engineers and quantity surveyors, and also trades such as bricklayers or carpenters, it does exclude several roles such as general labourers and some plant operators.
- Applicants need to produce evidence of a job offer at the required skill level that meets a new minimum salary threshold (£25,600, or the going rate for the role). They must also be able to speak English to the required standard.
- Even if the relevant criteria are met (see here for full criteria), the ongoing sponsorship costs (£1,000 per skilled worker for the first 12 months and £500 for each subsequent six-month period) to bring workers to the UK will be prohibitive for some employers.
- No mutual recognition of professional qualifications under the trade deal. Architects, engineers and others holding UK professional qualifications will not be able to use that qualification to work in an EU member state and likewise, there is no automatic recognition of professional qualifications achieved outside the UK.
- However, the intention is for the UK and the EU to agree mutual recognition arrangements for the recognition of professional qualifications covering the UK and all 27 EU Member States – much like what we had in place pre-Brexit.
- Visas will not be required for most business travel across the EU for short stays of up to 90 days in a 180-day period, but work visas will be required for those intending to work for a longer period of time.
- The UK will maintain a separate and independent procurement regime. After 1st January 2021 contracting authorities will no longer be obliged to publish notices in the Official Journal of the European Union (OJEU). A new UK e-notification system, ‘Find a Tender’ will be used.
- The Trade Deal provides for a framework of rules for trade in public procurement based on the WTO Government Procurement Agreement (GPA). The GPA commits members to open up their public procurement markets to contractors from other member countries. As a result, UK businesses will still be able to compete for public contracts across the EU although on a more limited basis than before.
- The UK and EU have also agreed an extension of market access coverage beyond the GPA, which includes: the gas and heat distribution sector, private utilities that act as a monopoly and a range of additional services in the hospitality, telecoms, real estate, education and other business sectors. This will provide UK businesses with additional opportunities and will equally mean more competition for UK public sector contracts.
- The EU-UK Trade and Cooperation Agreement contains no relevant provisions for cross-border disputes.
- With regard to questions over jurisdiction and the enforcement of judgements with EU countries, this will be determined by common law and the Hague Convention 2005.
- The Hague Convention requires the court designated in an exclusive jurisdiction clause to hear the case and prevents courts of other contracting states hearing parallel proceedings. It will also provide some level of protection as regards enforcement as it generally requires any judgment granted by the court specified in an exclusive jurisdiction clause to be recognised and enforced in other member states. As a result, parties may wish to consider the inclusion of exclusive jurisdiction clauses in their contracts.
- Legal advice should be obtained as regards dispute resolution clauses in new contracts with EU entities or concerning projects in the EU.