What does the Brexit Deal mean for the Construction Industry? Still some serious snagging issues
After the perils and uncertainties of 2020, many have been hoping for a smoother passage through 2021. Hopes were bolstered in late December 2020 with news that the UK Government had at the eleventh hour hammered out a Trade and Co-operation Agreement (TCA) with the European Union, following an arduous negotiation process, which had been made even more difficult by the COVID-19 crisis.
News of agreement of the TCA eased concerns round the possible adverse effects of a “no deal” scenario at the end of the “Transition Period” under the EU-UK Withdrawal Agreement. This raised the possibility of cross-border trade being complicated with tariff and non-tariff barriers, adding cost, delay and complication. Businesses had been engaged in preparations for a “no deal” only to discover that the Government had averted this at the eleventh hour.
The construction sector – already impacted by the effects of the COVID crisis - stood to be particularly badly hit by the prospect of a “No deal” Brexit. In this article, we have therefore reviewed the extent to which the industry’s main concerns have been addressed by the TCA and map out some actions businesses may still need to take. A key take-away is that for all the positive aspects of the TCA, construction firms still may have work to do to make sure their operations run smoothly in the post-Brexit era.
Concern 1: Free movement and cost of construction materials and products
What is the concern? UK businesses have come to rely upon the free movement of construction materials and products between EU Member States. Goods move across frontiers without the imposition of tariffs or customs formalities. It is estimated by the Construction Leadership Council that around 22% of all materials, products and components are sourced from abroad by UK construction businesses. “No deal” would pose a risk of concern of disruption with trade flows. The imposition of tariffs could not only lead to unforeseen costs but also disagreements between employers and contractors as to who should bear those.
Has the TCA addressed the concern? The TCA has ensured that there will be no tariffs or quotas on goods moving between the EU and UK, provided rules of origin are satisfied in relation to the goods. However, customs declarations need to be made when importing or exporting goods. In addition, there could be possible delays at customs owing in part to the COVID-19 crisis.
There had been concern that the need for customs declarations could slow cross-border freight. As at early January 2021, this new requirement does not appear to have created gridlock at major ports, although the Port of Dover has warned that this time of year is traditionally a slow time for freight, so the worst could still be to come.
What should businesses do? Businesses who rely on imported materials – whether directly or through a third party – still need to gauge whether there will be delays in the arrival of those products. They should talk to suppliers about possible delays to deliveries and consider the knock-on effect this may have for delivery requirements under contracts. If there is a likelihood of disruption, discussions should be held in advance with employers or clients in order to manage expectations or potentially agree variations (e.g. amendments to milestone dates) where appropriate. Businesses may also want to consider the effect and potential applicability of force majeure clauses. For EU imports, it may be possible to defer making customs declarations under a scheme announced by the HMRC, which may help speed up the logistical process. Businesses should also check goods will satisfy the relevant “rules of origin” which entitle them to tariff free treatment under the TCA.
Concern 2: Standards and regulation
What is the concern? The EU single market is characterised by harmonised regulatory standards and mutual recognition of standards in many areas, which contributes to frictionless trade. The UK leaving this behind raises the risk of inconsistency between the two trading blocs and the general lowering of standards, as well as increased bureaucracy for businesses.
While the UK was an EU Member State, the EU Construction Products Regulation 305/2011 (“the CPR”) had the effect of removing technical barriers to the trade of construction products between the UK and the European single market. The CPR includes, for example, obligations for products to carry the “CE” mark – a common quality and safety mark for products which allows them to be marketed and sold freely throughout the EU.
Now that the UK has left the EU single market, there is no single “CE” mark used across the UK territory and EU. There are instead three different types of product marking that may be needed, depending on where the product is intended to be used:
- The EU’s marking for product conformity (CE marking)
- The United Kingdom Conformity Assessed mark (UKCA mark)
- The United Kingdom Northern Ireland mark (UK(NI) mark), which is additional to the CE marking in some instances.
In order to apply and use the relevant mark lawfully, the manufacturer may need to engage the services of a conformity assessment body as part of the demonstration of conformity. These assessments are carried out by organisations recognised within the specific jurisdiction.
Businesses must also check whether, for the purposes of the legal rules on conformity marking, they fall within the definition of “importer” for the purpose of the relevant regulations. That could be a point that is too easily missed. The “importer” is the party which is deemed to have first brought the good into the UK and to have placed it on the market here. “Placing on the market” can take place with a simple transfer of ownership from one entity to another. It does not necessarily involve selling the goods on.
If you are the “importer”, you must fulfil a number of requirements, such as ensuring your company’s details and a contact address appear on the label of the product or in certain cases up to 1 January 2022, in the accompanying documentation instead (which may be easier).
Has the TCA addressed this concern? The TCA does not provide for mutual recognition of products or standards in the same way as existed while the UK was in the EU. However, the UK Government has already introduced laws (the Construction Products Materials Regulations 2019 and 2020) which lessen the impact of the UK leaving behind the EU single market regulatory regime.
The UK has now introduced the UKCA mark which will eventually replace the “CE” marking for goods sold on the UK market. However, this new regime (and the introduction new UKCA mark) does not prevent the sale or use in the UK of CE marked materials straight away. Most imported goods which already carried a valid CE mark as at 31 December 2020 can still legally be used in the UK until 31 January 2022. The UKCA will not be recognised for products exported to the EU so any goods exported to the EU must still meet the CE criteria and carry the CE mark. The requirements to reference the UK importer on labels or product documentation are however now in force, as mentioned above.
What can businesses do? The rules are complex and need to be reviewed carefully. First and foremost, businesses need to check their product marking, as well as whether they are the designated “importer”. Most CE marked goods may still be sold lawfully in the UK until the end of 2021. However, there are certain exceptions and you should check your materials do not come within any of these. Also remember that the new rules requiring the identification of the UK importer, either on the label or in accompanying product documentation are now in force and must be complied with. During the course of 2021, businesses dealing in materials may need to get ready to transition to using products used or sold which carry the new UKCA marking by 2022. If businesses have EU suppliers, they should ensure that their suppliers are ready for this change. For goods and materials imported from the EU, businesses must ensure any products or components they use will require a third party conformity assessment by an approved body in order to continue to be used within the UK.
Concern 3: Workforce and access to labour
What is the concern? The construction industry has benefited from the free movement of labour from the other EU member states. Many skilled and unskilled workers have opted to move here to work on construction projects. Although many businesses consider that labour costs have been too high for some time, EU free movement may have helped mitigate the problem. Many construction and engineering firms have been fearful of a possible skill shortage which may inflate costs and hamper the ability of the industry to deliver projects on time and to budget or even mean certain projects become unaffordable.
For more information on this issue for the construction industry please see The UK’s post-Brexit rules for skilled workers – Key implications for the construction industry and our update Brexit: Implications for Immigration | Charles Russell Speechlys.
Concern 4: Public procurement and project opportunities
What is the concern? The EU rules on public procurement require projects procured by public entities to be advertised and subject to a competitive tender process. Interested parties across the EU and European Economic Area, as well as those established in one of the signatory states of the WTO Government Procurement Agreement (“GPA”) must be able to tender. The EU rules on public procurement open opportunities for construction firms across the continent. Leaving the EU created a risk of UK firms being excluded from EU based project opportunities (such as in relation to infrastructure).
The concern relating to market access has been partially mitigated by the UK’s entry into the GPA in December 2020. The GPA is a plurilateral agreement between 20 signatories, including 19 states globally and the European Union (which signed on behalf of its 27 member states). The purpose of the GPA is to ensure that governments allow public procurement opportunities are opened up to businesses from each other’s states. The GPA covers most (but not all) project types covered by the EU rules on procurement. Some, however, are not included (such as defence projects and contracts awarded by utility bodies).
Has the TCA addressed this concern? The TCA largely confirms that the EU and UK will guarantee each other a framework of transparent and competitive procurement along the lines set out in the GPA. The UK and EU have also agreed an extension of market access coverage to include projects that are not included within the GPA. These additional project types include opportunities in the gas and heat distribution sector; contracts awarded by private utilities that act as a monopoly (e.g. ports); and contracts for a range of additional services in the hospitality, telecoms, real estate and education sectors. Notably, however, defence appears to have been left out of this scope. That is perhaps not surprising given the often sensitive nature of many defence projects.
What should businesses do? The TCA provisions on public procurement are helpful to construction and engineering businesses. However, UK firms competing for contract opportunities overseas should still check whether the types of procurement that interest them are included in the coverage of the TCA or GPA. If they are not, there is a risk public bodies in the EU will not allow them to compete for future tenders for that project type. If such a risk exists, a practical solution for a UK business may be to establish an EU based subsidiary or to bid alongside EU based consortium partners.
Also remember that the procuring authority may still choose to allow participation from non-EU bidders even when not required to do so. It may therefore be worthwhile expressing interest in working with the body concerned and reminding them of the benefits of widening competition as widely as possible.
Whilst the TCA will head off some of the more serious concerns regarding a no deal scenario, it has not removed every complication, nor has it relieved businesses of the need to consider the impact of Brexit on their business. Even though the Transition Period has now ended, it is not too late to take preparations which will improve the prospects of your business. Proactive steps will help retain workforce as well as reduce or avoid costs, consequential delays and potential contractual liability. In this article, we have highlighted only some of the steps which should be taken. Businesses may benefit from advice on other adjustments that are required.
This article was written by Paul Henty, a Partner in Charles Russell Speechlys’ Construction and Engineering Practice. He is also the firm’s head of Public Procurement. Please contact Paul or your usual Charles Russell Speechlys advisor if you have any queries regarding Brexit, the construction industry or what it means for your business.