While Brexit negotiations proceed, the industry is already thinking ahead to ensure it’s as ready as possible for the outcome – whatever it may be.
But what can be done now, in the absence of any firm agreement on people, commerce and supply chains? There are a number of immediate and longer-term steps to ensure you are prepared and have maximum flexibility to respond to change.
Operational certainty is crucial. As there are a wide range of possible Brexit outcomes, the industry is already looking at different scenarios.
In particular, a full withdrawal from the EU single market and/or customs union could create significant financial and people-based impacts and opportunities.
What can you do now?
Ensure board awareness of possible Brexit impact. Any transitional exit arrangements could be particularly time-sensitive, and one or more internal teams should focus on monitoring and reporting on Brexit issues.
By working with legal and other teams, contractors can monitor the developments in legal and regulatory change, create risk registers and raise the profile of specific issues within the organisation.
“Contractors should be starting to review and amend key contracts, refresh supply chain relationships and / or identify potential new suppliers”
Supply chain and people mapping are equally valuable. Costs and risks in supply chains as well as access to workers could change post-Brexit, depending on single-market access. Contractors should be starting to review and amend key contracts, refresh supply chain relationships and / or identify potential new suppliers.
It is also worth conducting contract health checks and futureproofing. New and, potentially, existing long-term contracts should include so-called ‘Brexit clauses’ to deal with changes to, for example, territorial definitions, force majeure and/or change in law provisions.
Public sector contracts may need particular focus on change mechanisms and/or payment mechanisms in PFI to reflect any increase in cost of delivery due to tariffs, supply chain cost increases or difficulties in recruitment.
The future will become clearer as the political and technical negotiations conclude. It seems likely at this point that some form of transitional arrangements will be required.
While this avoids a ‘cliff edge’ for business, it means that legal and regulatory change could continue for many years. Key steps could include:
- Implementing practical change. A detailed programme of change could focus on the highest-value, business-critical contracts and issues. These could include changes to reflect, for example, the impact of migration restrictions, intellectual property and any tariffs on supply chains.
- Regulatory restructure. Brexit could result in requirements on contractors to establish new local presence(s) in the EU to operate. This could involve creating new entities and / or developing existing relationships / partnerships.
- Updating policies, procedures and risk management. Contractors (particularly those working with the public sector in the UK and the EU) will want to ensure all of their people and policies are updated to fully implement whatever change comes next.
David Hansom is procurement and trade partner at Clyde & Co