Budget 2016: Implications for the construction and infrastructure sectors

and the £80 million to continue the planning for Crossrail 2 that will help increase tube capacity and reduce the pressure on Victoria and Waterloo stations. Road improvements, including an upgrade to the M62, and flood defence schemes also fared well with nearly £1billion committed overall.

Brexit implications

It is interesting to speculate about the changes to the procurement regime if the UK votes “No” on 23rd June. Although it is tempting to sweep away the provisions of the EU procurement directives which frequently add delay and complexity to projects, we expect to see a continuation of compulsory competitive tendering.  For the first two years following any decision regarding  the EU membership, the UK would need to negotiate the terms of a trade agreement with the Union under Article 50 of the Treaty.  During those two years, the Directives will remain in place.  It is possible that a regime similar to the current procurement rules will continue in existence beyond that time, as the EU is likely to seek access to public contracts for continental businesses.  The EU made similar demands in recent negotiations over its free trade agreement with Canada. The EEA countries (Iceland, Norway and Liechtenstein) are also subject to procurement laws that are based on those of the EU. 

Whatever the outcome of the negotiations with the UK, HM Government is likely to favour some form of competitive tendering for large infrastructure contracts as a way to encourage efficiency and innovation, preventing corruption or nepotism.  Post Brexit, the UK would remain a member of the World Trade Organization (WTO) and the Organisation for Economic Co-operation and Development (OECD). Both of these organisations favour transparent and competitive tendering for public contracts.

On the flip side

Regardless of the EU referendum outcome, there is also the inevitable opportunity cost of infrastructure developments of this scale.  As has been seen with both Crossrail 1 and Phase 1 of HS2, such projects, whilst designed to benefit economic and social performance, have a negative impact on property owners and occupiers adjacent to the proposed lines. In some cases such big infrastructure projects can significantly reduce the value of properties and threaten the viability of otherwise well performing enterprises. The environmental impact is not to be underestimated either.

Legal obstacles – including judicial review and the parliamentary petitioning process – can cause substantial delay and increase the sums necessary to bring forward such fundamental proposals. There will also be compensation claims arising as a result of compulsory purchase or other losses sustained.

The Government is facing a challenge to deliver these major infrastructure projects on budget, on time and with minimum environmental, economic and social damage.

If you have any questions or concerns about the 2016 Budget and its implications for you or your business, please contact David Savage on david.savage@crsblaw.com