Contractors must be wary of Brexit clauses being inserted into construction contracts, Arcadis has warned as the industry has less than six months to go until the UK leaves the EU.
The warning over Brexit clauses from Arcadis has come from its ‘UK Construction Market View’ report released this quarter. The timing of the report has come amid UK and EU negotiators this week agreeing upon a Brexit withdrawal deal which Theresa May hopes to have approved by her cabinet, Parliament and the other 27 EU member states.
Arcadis’ report warns that contractual tensions may increase due to the impact of Brexit, thereby increasing the potential for contractual disputes.
According to Arcadis, Brexit clauses can vary considerably but broadly they all seek to address specific provisions for recovering costs as a result of the introduction of tariffs, loss of access to resources and delays to material deliveries that are all Brexit related as defined or agreed in contracts.
Brexit will also expand the potential for extreme contract remedies such as force majeure or frustration, the report warns.
Force majeure and frustration are both remedies under contract law can free both parties from a contract when an extraordinary event prevents one or both parties from fulfilling their obligations under it.
The report also warns that post-Brexit the availability of EU labour may change, prices may change as a result of EU and non-EU tariffs, schedules may be affected by customs barriers and that the value of sterling may fluctuate.
Arcadis head of market intelligence Will Waller said: “With less than five months to go before we leave the EU and political tensions high in Westminster and Brussels, it is no surprise that this uncertainty is unsettling the construction market with costs on the rise and labour supply shrinking.”
Arcadis’ tender price forecast also assumes a soft Brexit scenario in relation to Brexit in which construction output will rise 0.1% in 2018 and 0.6% in 2019.
News of Arcadis’ five-point plan has come after earlier this year it was revealed that delays to political decisions on projects due to Brexit have sent business confidence in the UK construction sector tumbling to a six-year low.
While the purchasing managers’ index (PMI), compiled by IHS Markit, showed that Britain’s construction sector rebounded in October, it also showed that business optimism declined to its lowest level in almost six years. The PMI showed a reading of 53.2 in October, an increase from 52.1 in September.
The UK is set to exit the EU next year on March 2019 after people voted by 51.9% to 48.1% voted to leave in the 2016 Brexit referendum.
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