Turner & Townsend: A Brexit survival guide for UK construction
As the US comes to terms with the surprise result of its presidential election, the UK’s construction sector is returning to an uneasy calm after a rollercoaster few months.
Official data from the ONS shows that construction industry output fell by 1.4% in Q3 – the first three calendar months following the Brexit referendum.
Yet in October the Purchasing Managers’ Index recorded resilient levels of confidence and a steady increase in new orders for construction firms.
As this month’s High Court ruling made clear, Brexit will be a process, not an event. For now, the immediate impact of the referendum result is being felt in four key areas:
Contractor balance sheets have not fully recovered since the recession, leaving them weak and susceptible to further shocks, and the current market uncertainty may prompt some suppliers to bid at lower margins to secure work.
With clients also more likely to make late changes in their investment decisions, this uncertainty could increase the threat of contractor insolvency.
Clients must therefore watch their contractors closely in coming months for any evidence of distress. But there is a delicate balancing act to be achieved – the intelligent client will monitor, support and collaborate with their suppliers in equal measure.
Contract commitments and liabilities
In normal times, contracts offer protection for both clients and suppliers – a bulwark against unpleasant or unexpected change.
However an event as game-changing as Brexit and its as yet unknown consequences may test existing contracts, and their interpretation, to the limit.
Clearly the prospect of a contract dispute represents a major liability for clients, so it’s essential they review thoroughly all existing contracts for any such exposure.
Sterling’s abrupt fall in the wake of the Brexit vote quickly translated into input cost inflation. Overall construction cost inflation could now rise further if contractors seek to cushion the impact of falling demand and exchange rate volatility by increasing risk and contingency pricing on two-stage tenders.
With inflationary pressures looming for construction’s two primary inputs – materials and labour – it’s essential that clients take proactive steps to review their project scope and identify potential risks to both cost and schedule.
Robust project controls serve a twin purpose – as both guarantor of efficiency and an early warning system.
They are never more important than in the current uncertain climate, and clients should dial up the levels of scrutiny on all aspects of their projects.
Where problems are identified, corrective action can be taken. Where no problems are found, the client will enjoy the reassurance that their project is well managed and delivering business objectives.
Cool heads and considered responses
For all the speculation about the long-term effects of Brexit, the immediate impact is easier to quantify – continuing uncertainty, rising costs, deferred investment and pressure on the supply chain.
One factor that will mitigate Brexit uncertainty is the Government’s decision to proceed with the “three H” infrastructure projects. This long-term commitment to the industry should allow us to invest, and help us ride out any downturn in the real estate market.
As the UK embarks on the formal process of Brexit, new challenges will emerge. Individual tactics will need to evolve in response, but an agile strategy that includes robust project controls and a commitment to a collaborative supply chain will enable clients to continually anticipate, adapt and achieve the best project outcomes.
Paul Connolly is managing director of cost management at Turner & Townsend
Read the November 2016 issue of Construction Global magazine
Environment Agency clamps down on plastic films and wraps
Businesses in the waste and construction industries must ensure they deal with waste plastic properly to stop illegal exports, the Environment Agency (EA) has warned.
The warning comes as the Agency is increasingly aware of plastic film and wrap from the construction and demolition sector being illegally exported.
Exports are frequently being classified as ‘green list’ waste of low risk to the environment, but are often contaminated with materials such as mud, sand, bricks and wood, posing a risk to the environment and human health overseas, and undermining legitimate businesses in the UK seeking to recover such waste properly.
During the last year, the EA has intercepted shipments to prevent the illegal export of this material on numerous occasions. The Agency inspected 1,889 containers at English ports and stopped 463 being illegally exported. This, combined with regulatory intervention upstream at sites, prevented the illegal export of nearly 23,000 tonnes of waste.
Those convicted of illegally exporting waste face an unlimited fine and a two-year jail sentence. But construction firms could also face enforcement action if contaminated construction and demolition waste plastic is illegally exported.
Malcolm Lythgo, Head of Waste Regulation at the Environment Agency, said it is seeing a marked increase in the number of highly contaminated plastic film and wrap shipments from the construction and demolition industry being stopped by officers.
“I would strongly urge businesses to observe their legal responsibility to ensure waste is processed appropriately, so we can protect human health and the environment now and for future generations. It’s not enough just to give your waste to someone else - even a registered carrier. You need to know where your waste will ultimately end up to know it’s been handled properly. We want to work constructively with those in the construction and waste sectors so they can operate compliantly, but we will not hesitate to clamp down on those who show disregard for the environment and the law.”
There are a number of simple, practical steps that businesses can take to ensure that C&D site waste is handled legally.
Construction businesses should check what’s in their waste
- Different waste types need different treatments and so must be correctly categorised to ensure it goes to a site that is authorised to handle it safely. Businesses can also check if their waste is hazardous as different rules might apply.
- If you are removing the waste yourself, you must be a registered waste carrier- registration can be carried out here. When a waste collector is transporting your site waste, you must check they have a waste carrier’s licence from the EA.
- You must also check that the end destination site any waste is taken to is permitted to accept it and has the right authorisations in place. Keep a record of any waste that leaves your site by completing a waste transfer note or a consignment note for hazardous waste which record what and how much waste you have handed over and where it is going.
Waste management industry must adhere to export controls
- Contaminated C&D waste plastic - including low-density polyethylene (LDPE) wrap and film - must be exported with prior consent from the EA as well as competent authorities in transit and destination countries.
- Those involved in the export of such waste must ensure that it meets the requirements set under the relevant export controls, such as being almost free-from contamination; the destination sites are appropriately licensed to receive and treat the waste; and waste is correctly managed once received.
The EA will continue to actively target those who export contaminated C&D plastic waste illegally, including any accredited packaging exporters who issue Packaging Waste Export Recovery Notes (PERNs) against such material in breach of their Conditions of Accreditation.
Businesses involved in the shipment of waste are required to take all necessary steps to ensure the waste they ship is managed in an environmentally sound manner throughout its shipment and during its recycling.
Anyone with information regarding the illegal export of waste including C&D waste plastics can contact the EA’s Illegal Waste Exports team at: [email protected] or anonymously via Crimestoppers on 0800 555 111 or via their website