It’s still impossible to predict the outcome of the Brexit talks, but that’s no excuse not to be ready for the uncertainty ahead. Here’s a five-point plan for how to do it
Brexit came that little bit closer this weekend, with the leaders of the EU27 signing off both the political declaration and the transition agreement. As has become the norm in the Brexit talks, more complexity has been introduced to the process, with long-simmering issues over fisheries and even the future of Gibraltar being added to the mix, even as the documents were signed.
Brexit is a shared problem for all sides of the industry as it could constrain our ability to build. By working together the worst of these problems can be mitigated
There are plenty of obstacles yet to be overcome if a deal is to be finalised. In reality, there are still at least five potential results, ranging from a disorganised no-deal fall-out to an extension of Article 50 and a second referendum. Even the best outcome promises heightened uncertainty for a long period, not only as a future trading relationship is hammered out, but as the implications for labour markets, procurement and regulatory convergence evolve.
Risk and uncertainty are of course construction’s meat and drink, with clients, consultants, contractors and their suppliers all manoeuvring to manage their exposure so that projects are affordable, deliverable and profitable. However, the high cost of construction in the UK and the low profitability of the supply chain highlight that risk transfer isn’t working as well as it should, with parts of the supply chain often disproportionally exposed to risks impossible to accurately quantify at the outset of a project.
Putting in place practical plans for known threats such as constraints on labour and materials availability as well as unknown threats is a hugely challenging task
The industry widely recognises the potential impact of Brexit on the long-term availability of labour and on the short-term operation of vital just-in-time supply chains. Brexit clauses aiming to limit exposure to costs associated with tariffs or labour shortages are becoming more common in contracts prepared by both clients and contractors. But does adding a contract clause solve the problem or brush it under the carpet? In my view, Brexit is a shared problem for all sides of the industry as it could constrain our ability to build. By working together and understanding the issues that face the supply chain, the worst of these problems can be mitigated before they hit the critical path of a critical project.
There is plenty of evidence that responsible clients and contractors are taking steps to reduce their exposure – hiring extra logistics space, for example, to safeguard the delivery of time-critical components. But is this enough? What about schemes that are now being bought? It is easily foreseeable, for example, that the procurement route and contract strategy being used on a new project could simply be baking in future problems.
One solution is greater transparency, with all project members understanding the potential effects of Brexit and the steps that can be taken to minimise them. At Arcadis we have developed a five-point plan to help teams manage this process:
- Engage with the supply chain: By understanding the exposure of the supply chain to risks associated with labour availability or customs barriers, a project team can build a full picture of the potential for Brexit fall-out. Having an assessment of preparations made so far will highlight a project’s resilience.
- Review the procurement strategy: Procurement is increasingly about risk allocation and the purpose of a review is to assess whether all risks have been identified and whether the transfer is cost-effective and water-tight. Some risks such as customs delays are relatively easy to isolate and mitigate. Others associated with, for example, future labour availability are so difficult to predict that alternative approaches to risk sharing may be necessary to assure affordability.
- Check the contract: In anticipation that disputes might arise as a result of the interpretation of contract clauses and Brexit events, it’s a good idea for all parties, at all levels of the supply chain, to ensure that contracts are in place, that they are being administered correctly and that contract provisions – particularly amended clauses – are properly understood.
- Be vigilant: Given heightened levels of uncertainty, the financial health of project team members could suffer if projects or payments are delayed. Due diligence on the financial health of the supply chain will be increasingly important.
- Prepare contingencies: Putting in place practical plans for known threats such as constraints on labour and materials availability as well as unknown threats such as the political fall-out of Brexit is essential but a hugely challenging task given the range of potential outcomes. Increasing the momentum on war-gaming for project scenarios, market announcements and other unplanned events is an essential step ahead of 29 March 2019.
Undoubtedly Brexit is both a huge distraction for industry and potentially a big threat to current business models. Even in the most optimistic scenarios, the potential effect of Brexit-driven change is profound. In such circumstances, the temptation can be to focus on the known problems of today rather than the unknowns of tomorrow. By working together, clients and their teams can build a better picture of what the problems are and how well prepared the team is. Preparation might not deliver a better Brexit, but it will ensure a much better response.