Construction contracts and Brexit

In the latest of our series of articles on Brexit and the changes we can expect come 1^st January 2021, Construction Partner Alan Erwin looks at the implications and considerations for construction contracts.

The UK left the European Union on 31 January 2020, but the full impact has not yet been felt. That will change after 31 December 2020, when the transition period comes to an end. Until then, all EU rules and laws will continue to apply to the UK. So how will construction contracts change after that date?

The short answer is that, in a narrow sense, they will not change very much. The basic law of contract was never much affected by EU law and derives from the development of common law over time. From time to time proposals were made to harmonise construction contracts across the EU, but got nowhere. The familiar standard form construction contracts will continue much as before.

However, the business environment in which construction operates will change radically, whether or not a free trade agreement can be negotiated by the end of the transition period. Construction contracts are by their nature concerned with risk allocation, and will therefore need to take into account the new risks that arise after 31 December in relation to matters such as:

• Availability of materials. This may be affected by matters such as tariffs, additional paperwork, custom checks and delays in transporting goods that need to be imported from the EU.
• Availability of labour. In recent years the construction industry has come to rely heavily on EU labour. Such workers may in future be unable or unwilling to remain in the UK.
• Divergent technical standards. From the end of the transition period, the UK will no longer be required to follow EU technical standards, so a requirement to meet UK standards may not permit the use of materials imported from the EU which fail to meet the divergent UK standard.

In addition, there are some specific areas of law of relevance to construction where EU law has had an impact, and the effects of Brexit will be felt, if not always immediately. They include:

• Health and safety. The CDM Regulations implement an EU directive, so in the future UK governments will be less constrained in how they address the issue of health and safety on building sites. This is unlikely to result in any relaxation of health and safety standards, however.
• Construction products. Under the EU Construction Products Regulation, before placing any construction product which is covered by a harmonised technical standard on the EU market, manufacturers must draw up a declaration of performance and affix a ‘CE’ marking. From 1 January 2021 new UK regulations will come into force. These effectively replicate the EU regime, but substituting UK standards and a “UK” mark.
• Public sector contracts. Under the existing EU regime, which is implemented in the UK by the Public Contracts Regulations, public sector contracts must be advertised in the Official Journal of the EU (OJEU) and follow detailed tendering and award procedures, which are designed to ensure access and fair treatment for bidders across the EU. In the short term, the main change after the end of the transition period will be that, instead of being advertised in the OJEU, tenders will need to be advertised in the new UK e-notification service, called “Find a Tender”. In the longer term, there may be further changes. The EU rules have long been felt to be unnecessarily prescriptive and bureaucratic, so we may see some attempt to streamline the rules to make them more user-friendly.
• Recognition and enforcement of judgments. Under the Brussels Regulation, a judgment obtained in the UK courts can be enforced in another EU member state. At the end of the transition period, the Brussels Regulation will cease to apply to the UK. The UK has notified its intention to re-join the Hague Convention in its own right after the transition period. However, the Hague Convention has some limitations compared with the Brussels Regulation and only provides for recognition of judgments where there is an exclusive choice of jurisdiction. Moreover, there is some uncertainty over whether EU member states will recognise judgments arising from an exclusive choice of jurisdiction in a contract entered into before the end of the transition period.