With the UK currently due to leave the EU at the end of this month, Brexit may cause the construction industry a continuing period of uncertainty in 2020 but the government’s agenda may also provide increased opportunities. We look ahead at what this year may have in store.
The top priority for the government is delivering the UK’s departure from the EU on 31 January. How Brexit will affect the construction industry remains open to speculation. Skills shortages and problems surrounding the import and export of construction materials may be some of the issues the industry will need to tackle. However, until there is clarity on a future trade deal, businesses will still face uncertainty into 2020. The construction industry will need to continue to consider how Brexit may impact future contracts and what contractual provisions are necessary to mitigate potential risks.
The Queen’s Speech at the end of 2019 confirmed that improving building safety is firmly on the government’s agenda. The Building Safety Bill will take forward the recommendations of Dame Judith Hackitt in her review of building regulations and fire safety. The Bill includes an enhanced safety framework for high-rise residential buildings. Those responsible for the safety of high-rise buildings will have clearer accountability and stronger duties. In addition, the Fire Safety Bill will implement the legislative recommendations of the Grenfell Tower Public Inquiry Phase 1 Report. The Bill will clarify that the Fire Safety Order includes external walls of a building, including cladding, and fire doors for domestic premises of multiple occupancy. There will be a transitional period to enable building owners and managers and Fire and Rescue Services to put in place the infrastructure for these changes. Both bills apply to England only as policy in this area is devolved in Northern Ireland, Wales and Scotland. Phase 2 of the Grenfell Tower Public Inquiry is due to commence at the end of January 2020.
The future of HS2 remains uncertain. In August 2019, the government announced an independent review into HS2 chaired by Douglas Oakervee to provide advice on how and whether to proceed with HS2. The background notes to the Queen’s Speech state that the government is awaiting this review “without prejudice to the Oakervee Review’s findings and any government decisions that follow, it is expected that the High Speed Rail (West Midlands – Crewe) Bill will be revived in this Parliament”. Until a decision is reached, the future of the project remains uncertain. Delays to or cancellation of the project would have major implications for the businesses involved and their supply chains.
What are the government’s other priorities?
The government has announced plans to invest £100 billion into the UK’s infrastructure. Further details will be published alongside the first budget in the National Infrastructure Strategy. The government has also committed to continue to take steps to meet the target of net zero greenhouse emissions by 2050 and this includes delivering green infrastructure, investing in carbon capture, offshore wind, nuclear energy and electric vehicle infrastructure as well as investing in the energy efficiency of homes, schools and hospitals. To fully assess what impact this will have on the construction industry we will have to wait for the first budget which the government has said will contain a programme of policy and investment that will prioritise the environment.
In December, the Scottish Government launched a consultation on the practice of cash retentions in both public and private sector construction contracts in Scotland. The consultation states that “there is evidence that some payment practices prevalent in the construction industry are a barrier to investment, productivity improvements and growth. Cash retention, where the process is misused or abused, can be one such practice”. Retention reform is an issue that has caused some debate over the last few years but to date no changes have been implemented. In 2017, the Department for Business, Energy and Industrial Strategy in the UK published a similar consultation. However, as yet no response to this consultation has been published. In addition, a Private Members’ Bill introduced at the end of 2017 proposing a retention deposit scheme to safeguard cash retentions withheld in construction contracts failed to become law. The Scottish consultation may well put retention reform back on the agenda.
Supply chain insolvency
Between July and September 2019, the construction sector had the highest number of new underlying company insolvencies with 3,106. Cash flow issues and the risk of supply chain insolvencies are likely to continue into 2020. Careful assessment of a contracting party’s financial health, ensuring that collateral warranties are entered into and that contractually agreed security is provided will help to mitigate this risk.
The implementation of the VAT reverse charge was postponed from 1 October 2019 for 12 months to enable businesses more time to prepare and to avoid the changes coinciding with Brexit. The VAT reverse charge changes the way VAT is collected in the construction industry and will be implemented from 1 October 2020.