Be prepared to pay more
If contractors thought their margins were tight before, they’re about to get worse. As the Brexit deadline looms and the governments are no closer to a deal, companies are being warned that they should prepare for the worst.
But what does this “worst” look like and what will be the direct impacts on profits?
Supply chains will involve a lot more red tape, and navigating the way through that will be time consuming and expensive. Up until now the EU free trade agreement has meant that buying materials from EU countries has been as easy as buying them locally. There are no shipping regulations, checks or additional paperwork. When this free trade benefit falls away, all that is going to change.
Contractors should prepare to have to follow at least 10 different steps to get materials into the country including customs and security checks. They will most likely need to contract a customs broker and invest in import software to help manage the process – additional expenses that will shave margins more. Not forgetting that there’s a strong likelihood of import duties being reintroduced. The delays in getting materials through the process will cause disruptions with project timelines – again with a possible knock-on effect on the business bottom line.
Is this a risk that can be mitigated?
Contractors may be able to start to put policies in place for future projects that are set to start post Brexit to ensure that their margins aren’t entirely erased. But what about projects that are currently underway? With the pressures that the industry has been under as a whole, it’s unlikely that funds have been set aside to mitigate Brexit losses. Most contractors, especially tier one’s are simply not in a position to do that.
It’s clear that the industry is in for a bumpy ride in the coming months and it seems the best hope they have is to pressure government to negotiate a new deal in which not all the trade benefits are scrapped. This will at least give contractors some breathing space until things can turnaround. But even that will require government support.
There’ll need to be increased investment in construction and infrastructure and at better margins than currently exist. This means that government can’t only award projects on a lowest cost basis and start to recognize the value of paying more to get project delivery.