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It was interesting to read this week in Construction News how Galliford Try is preparing for the possibility of a No-Deal Brexit. I found it encouraging that their Construction Chief Executive Bill Hocking reports that clients have largely been “pragmatic” about working with them to mitigate any potential adverse effects. In the article he cites examples where a particular client has agreed to foot the bill to buy warehouse space so that Galliford Try can bring materials in early and store them. Another has agreed to fix the current price in euros for a large unitised cladding package that is coming in from the continent, meaning that if the pound goes down the client covers the extra cost, but if it goes up it will be cheaper. On some contracts, clients had even agreed to “holidays” on any liquidated damages that could be brought against delays caused by problems getting materials into the UK.

This last point is significant as, as regardless of your political stance, it would seem that the two certainties in No-Deal are that, at least in the first instance importing will be more problematic and I haven’t seen a report that suggests anything other than a depreciation in currency, which will in all likelihood drive inflation of imported products.

If the problems cause delays, and with conventional wisdom reflecting that Brexit cannot by definition be regarded as Force Majeure (it would be tough to win in court on the premise that the will of the people is an act of God!), the sticky point when the client is less “pragmatic” is not who is at fault, but who is contractually responsible for the delay or any price inflation.

We have sought legal advice on suggested Brexit contract clauses (and it is well worth scanning any contracts you have signed again as we head towards 31 October), but the complex nature makes it almost impossible, our latest response is below:

“One size does not fit all because:

  1. any such clauses must be tailored to the other contract terms, whether a formal JCT contract; bespoke contract or based on a contractor/subcontractor’s terms and conditions
  2. It will depend on what risks you are seeking to cover – e.g. delays in imports of materials getting through customs; currency fluctuations; the imposition of tariffs; increases in labour costs and /or labour shortages; other?

 On a practical level, thought needs to be given in any scenario as to how to establish/prove that the increased costs are down to Brexit (and not other factors) particularly in a no-deal situation.

 The best advice must be to raise this in the tender/contract negotiations to discuss and agree which party is going to take on which Brexit risks or not, or will they be shared and if so how.

 JCT has a set of fluctuation provisions for labour, materials and other statutory changes. The provisions are no longer indirectly included in any JCT contracts or subcontracts (because they had long fallen into disuse) but they can be found on JCT’s website and can be incorporated into any JCT contract by specific reference in that contract’s Contract Particulars.

With no real clarity on where we will be on the 1 November, we are keeping our No Deal Checklist up to date with new advice as it filters through and if you have any specific questions, please do feed them in and we’ll do our best!

Useful links:

FIS Brexit Checklist

The Institute for Government has series of helpful explainers, including on implications of an early general election

You can view the original article referenced above in Construction News here

Iain McIlwee

FIS CEO, 12 September 2019