Concerns have emerged that euro’s fall would render many contracts null and void
Construction companies across the EU are scrambling to add in currency-converting clauses to contracts worth billions of euros amid fears that the single European currency could collapse.
Building understands that major firms including ISG and Ramboll UK have been involved in reviewing contracts due to deep concerns that the euro’s fall would render swathes of contracts null and void unless preventative action is taken now.
Richard Threlfall, UK head of infrastructure at KPMG, called on all construction firms to urgently examine their exposure - particularly those working in cross-border eurozone joint ventures or where the supply chain involves euro-denominated materials.
Things are serious enough for firms to be putting together contingency plans
Dominic Helps, Corbett & Co
He added that all European contracts and not just those in construction are potentially affected because very few include a mechanism to convert to a different currency, usually the US dollar.
He said: “Recently some contracts in Spain have been drawn up including clauses that specifically provide for circumstances when it would become necessary to convert into another currency because the current one no longer exists. Without this sort of clause, if the currency ceases to exist, the contract will effectively become frustrated and hence null and void.
“The ramifications of the euro falling over are therefore potentially very serious. You may have agreed in a head contract to undertake some work but if part of your supply is with a eurozone supplier and the euro ceases to exist, then the contract would need to be renegotiated. At the very least that would take time but it might also be that in the renegotiation it is difficult to obtain equivalent commercial terms and the cost of supply goes up putting further pressure on margins.”
A spokesperson for the Department of Business, Innovation and Skills confirmed that the government is not currently taking action on the issue, adding that “it would fall to the individual parties involved” to protect themselves from contracts being made obsolete.
Construction lawyer at Corbett & Co Dominic Helps agreed that it is down to individual companies to sort it out. He said: “Things in the eurozone have got sufficiently serious for companies to be putting together some sort of contingency plan in case the euro does fall. The question is how many have actually thought to do it?”