Our team: Tim Wright
Are your outsourced Facilities Management arrangements Brexit-ready?
The UK left the European Union and the European Atomic Energy Community on 1 February 2020. However, the Withdrawal Agreement concluded between the UK and the EU is intended to provide for an orderly departure by the UK and includes a transition period during which EU law continues to apply to the UK. During this transition period the UK’s trading relationship with the EU has continued unchanged. The transition period will end on 31 December 2020.
The Withdrawal Agreement does not address the future relationship between the UK and the EU. What was already an aggressive timeline for negotiations has been impacted by the coronavirus pandemic, with both sides looking entrenched around their negotiating redlines such as fishing, cheese, state support and competition rules. Achieving agreement on a comprehensive Free Trade Agreement (FTA) is looking increasingly difficult.
If the parties do not reach agreement (and assuming the transition period is not extended, which seems very unlikely), the UK will trade with the EU on Word Trade Organisation (WTO) terms from 1 January 2021. This will result in the imposition of tariffs and quotas on goods traded with the EU.
Planning for change
This uncertainty calls for decisive forward planning. Whether or not a FTA is reached, businesses must recognise that change is coming and plan accordingly. The UK will leave the EU’s Single Market and Customs Union, and its VAT and excise duty area. The UK’s participation in the principles of freedom of movement of persons, goods and services will end. The UK will no longer benefit from FTAs which the EU has in place with other trading partners and will have to agree replacements.
Whilst sectors such as financial services, import/export, logistics and manufacturing are in the vanguard when it comes to dealing with Brexit, the facilities management sector (which employs more than about 10% of the country’s workforce and, according to the Institute of Workplace and Facilities Management (formerly the BIFM) contributes some 8% of UK GDP) will not go unaffected. Customers and their FM providers should together work through and plan for Brexit-related change, risk and impact.
Areas for review
As the end of the transition period approaches there remain many unanswered questions about the UK’s future direction. Getting Brexit-ready requires businesses to be forward-thinking and flexible, with the ability to act in an agile manner underpinned by robust and ongoing business strategy and contingency planning.
In the context of outsourced FM, key areas for review include:
|Workforce||Issues include the potential for labour and skills shortages resulting in increased labour costs as well contractual performance issues. Whilst not specific to Brexit, regulatory change such as IR35 which impacts contingent workforces/flexible labour should also be considered – labour is typically the main input cost in the majority of FM deals.|
|Logistics and warehousing||New border checks, controls and customs formalities may lead to delays shipping goods, including chemicals, consumables, food products and electrical and mechanical components. Alternative shipping arrangements and warehousing capacity should be considered.|
|Procurement Strategy||High impact products and services should be assessed and alternative sources considered. Already tested by COVID-19, diversity of supply will be important with the ability to pivot quickly and to source products in the market at competitive prices.|
|Supply Chain||FM providers often depend on a wide range of subcontractors and other supply chain providers including SMEs who may be ill prepared for Brexit-related change. Supply chains should be reviewed on a regular basis, starting with supply chain mapping, and weaknesses assessed and mitigated.|
|Regulatory Change||A wide range of new laws and regulations in the UK can be expected once the transition period ends as the UK starts to implement trade strategies and policies of its own, independent of the EU. New immigration rules will certainly apply. Increasing rigour of workplace health and safety regimes is also expected, accelerated by the impact of COVID-19. Consider engagement with industry associations who carry out regulatory horizon scanning and lobby government.|
|Data Flows||The UK’s ‘third country’ status means that UK/EU data flows will need to be reviewed with potential changes to current solutions required to ensure that data can continue to flow in a lawful manner.|
|Energy||Energy management services are increasingly included in FM scope. Although the direct impact on the FM sector is unclear, overall Brexit will have far-reaching implications on the UK’s future relationship with the European energy market.|
Don’t forget the contract
FM outsourcing contracts come in many different sizes and shapes, often depending on whether the award was global, regional or single country/portfolio, as well as the nature of the contract award – from a single service, such as cleaning, to soft/hard services deals, through to fully integrated FM contracts. Contracts can be based on standard forms (NCC, JCT) or bespoke. Various cost models are used, including total cost model, guaranteed maximum price, management fee (cost plus) and rate card. The various cost levers other relevant provisions in the contract should be considered as part of the planning process, and where relevant engagement with FM providers to implement contract change may be required. Looking ahead, where FM contracts are global or regional in scope, contractual choice of jurisdiction may become more of an issue especially where a UK based customer is contracting with a European headquartered provider.
The Covid-19 pandemic has underscored the importance of regularly carrying our risk assessments and testing the robustness of contingency plans and supply chains, as well as the ability to act in a flexible manner and to pivot quickly. Businesses should take a proactive approach with early and ongoing engagement with key FM partners recommended, especially given current levels of uncertainty about the future UK/EU relationship.