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Deal or no deal: Are your contracts Brexit-ready?

Jack Simpson

In 212 days the UK will officially leave the European Union.

To prepare for the ever-looming 29 March deadline, the government published its ‘no deal’ papers last week.

The suite of 24 documents were released to provide people and businesses with guidance on how to prepare for a no-deal scenario.

The papers covered areas such as farming, nuclear, money and tax, medicines and medical equipment and imports.

But as things stand, there is no briefing document for construction.

This is despite the fact that the Brexit deal, or lack of one, will have a major impact on contractors and their contracts.

With fewer than seven months to go until the cut-off point for a deal, the projects behind the majority of contracts being tendered and signed now will be delivered later than March.

Arcadis head of futures Will Waller is clear on the issues this presents: “Firms are having to commit to prices, and there is no way of knowing what the labour market [and] materials market will be like post-March.”

He says a no-deal situation would likely see inflation in labour and material costs, as well as the possibility of new tariffs coupled with a fall in the value of sterling.

All this could mean a contract that seems reasonable today could quickly spiral out of control as the increased costs begin to bite.

Clients are already moving to mitigate these potential outcomes.

Clyde & Co partner David Hansom says clients have begun protecting themselves against increases in labour and material costs with Brexit clauses. 

He says come contractors are countering those with clauses of their own, while other companies are becoming more selective in what they bid for. 

For those less forward-thinking, Mr Hansom says contracts of today could become problematic tomorrow.

Mr Waller adds that the consequences could be severe in some cases. “I think it could be critical for firms depending on what the contractual arrangement is,” he says.

“As you know, in most cases you have to commit to a price and then deliver it for that unless there is an agreeable change.”

The outcome of the Brexit negotiations is still uncertain. But was is clear is that firms need to be prepared for all scenarios – particularly the worst.

A company’s ability to ride out any post-Brexit storm will depend largely on the decisions it makes now.

Worth bearing in mind when you submit your next tender.

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