An Industry View of Brexit by Simon Flint

Sir Graham Brady, Chairman of the 1922 Committee, spoke to the Leaders Breakfast Meeting (LBM) on 26 February 19. An event that was sponsored by Tony Gee and Partners LLP.

My son has just written “Brexit is a myth”. Two weeks after Sir Graham spoke to the LBM, is this flippant remark moving to reality and has industry just passed through a three year nightmare of paralysis? In the last year we have said goodbye to Carillion, Wylfa and Honda.

What are the ramifications for the construction industry of these protracted discussions which have reignited politics and deflected our decision makers? For the committed (like Heathrow) the strategic plans are robust and the business drivers outweigh the various political scenarios. Water companies do not have the luxury of time, the need to provide good quality water is not dependent on a Westminster decision.

However, for many outside the imperatives of progress, decisions are being delayed as industry waits on various crucial political and as a consequence investment decisions. When Sir Graham spoke, there were three key political questions. The subsequent question was how might they impact on construction.

  1. Is “no deal” an option?
  2. Should there be a second referendum?
  3. Should Article 50 be delayed?

Today, Parliament seems even more divided and the solution seems to be a second referendum or a General Election. The outcome of the latter is likely to be the emergence of new political parties and the possibility of another hung parliament.

Before disappearing down a political rabbit hole, how is all of this going to impact upon the construction industry? It would appear that “no deal” is not an option and some Customs Union solution is now the likely outcome. Therefore, the UK should be able to avoid inflationary pressures caused by a fall in the £ and the imposition of new tariffs.

Depending on the final agreement, foreign investors may well be persuaded that the UK remains the gateway to Europe. All other things being equal, industry could be back to normal once confidence has returned. For infrastructure there could be a similar response to 2008 when money was pumped into “shovel ready” schemes. This would be good news for various major schemes even if some are only in the planning stages eg HS2, HS3, Crossrail 2, Lower Thames Crossing and Stonehenge. It might also provide the political will to progress the Northern Powerhouse and Sizewell C. There are swathes of the Midlands and the North that feel alienated by the political system – the demand will be to quell this unease with investment in infrastructure.

The likelihood is that there is to be a delay in Article 50 and this could take over a year to allow for EU elections and the appointment of European Commissioners. Unfortunately, this will counter the optimism expressed above. Another year of delay will continue to spread uncertainty. Industry operates on low margins, it does not have the flexibility to operate anything other than a “wait and see” tactic.

“Wait and see” will result in the nineties strategy of “battening down the hatches”. Companies will be keen to maintain their margins and will cut their overheads to maintain these. A large proportion of the overhead is pre contract costs. Teams will become more selective in what they bid for and where they put their resource for innovative solutions. There will be a return to using price as the only differentiator – a solution borne out of lack of resources rather than laziness. Procurement teams will need to work hard to get value and avoid sub optimal solutions.

It will be left to the brave clients to drive innovation, off site manufacturing, digitalisation, skills development and productivity. The challenge for industry will be to progress these with practical solutions and not to just talk about them. This will demand a noughties expression “counter cyclical investment” and will only be achievable through collective action.

 

Simon Flint, the author, is chairman of the Leaders Breakfast Meetings which seek to discuss topical construction issues. He has worked with Constructing Excellence and its predecessors since the 90s – looking at pioneering initiatives that improve the efficiency and productivity of the industry. However, the thoughts expressed in this “article” are personal and do not necessarily reflect those of Constructing Excellence or Advance Consultancy.