Heading for a Hard Brexit? Thoughts for the Facilities Management Outsourcing sector

It is the last week of June 2019. The UK referendum took place three years ago in June 2016. In March the following year, Prime Minister May wrote to Donald Tusk triggering the Article 50 process and the UK looked set to leave the EU on 29 March 2019. The date was enshrined in law by the European Union (Withdrawal Act) 2018, then hastily amended by statutory instrument when the UK didn’t Brexit at the end of March.

The EU27 subsequently agreed to the UK’s extension requests, first to 12 April, then to 31 October 2019 although if the UK and the EU were to ratify the Withdrawal Agreement before then the UK would leave sooner. Today, that seems unlikely. MPs have already rejected the withdrawal agreement three times. The Conservative party is now preoccupied with the contest to see who will replace Theresa May as prime minister. Boris Johnson, who leads the contest, has said that the UK will leave on 31 October, “deal or no deal” even though a no deal Brexit would result in “some disruption”.

A no deal Brexit would mean that the transition period which is part of the Withdrawal Agreement would not come into being. The UK would sever its ties with the EU with immediate effect and significant disruption might be expected in particular at the channel ports, adversely impacting food and medicinal supplies, as well as cross-border supply chains and logistics.

At the same time, the Facilities Management (FM) outsourcing sector is grappling with reputational issues (Interserve’s financial problems, Kier’s decision to exit its FM business etc.), low margins and staff shortages as well as increased government scrutiny in the fallout of Carillion’s insolvency.

One key takeaway from last week’s Facilities Show at the Excel Centre in London’s docklands was that despite the uncertainty posed by Brexit, the FM sector continues to be quite buoyant. However there remain some very real concerns which FM providers would be advised to consider carefully and, where appropriate, raise with their existing customers and factor into new bids and contract negotiations:

• Resourcing
  • Brexit is exaggerating the skills and resourcing gap, with more EU workers leaving the UK than arriving;
  • Staff-related costs will increase e.g. sponsorship and visa fees to bring in skilled individuals from outside the UK;
  • The skills-based immigration system (which UK government is currently consulting on) will not necessarily assist the FM sector, particularly for low paid roles such as cleaning;
  • Technology, e.g. robotic cleaning, is not yet ready to bridge gap and more investment in education, apprenticeship schemes and retraining programmes will be needed.
• Costs
  • Apart from staff, Brexit will result in increased costs e.g. consumables and other inputs;
  • For current FM contracts, whether such cost increases can be passed on to the customer will likely depend on the contractual financial model (i.e. fixed or GMP v. cost plus);
  • For long term TFM/IFM contracts with a savings glide path and no right to exit or renegotiate, managing these cost increases may prove very difficult;
  • New FM contracts should include appropriate Brexit clauses;
  • Adopting a cost plus model does back in a level of protection for FMs;
  • Customers however will want price certainty not open end pricing.
• Law and regulation
  • The Withdrawal Act means that there will be no immediate impact, whether from an employment law perspective or otherwise;
  • From a compliance perspective (Health, Safety, Environmental etc.) the UK is currently aligned with EU but it is not clear which direction the new Prime Minister will want to take us;
  • The potential impact of UK/US trade deal on UK regulations remains to be seen.

FM Opportunities

Whilst the country is experiencing Brexit-induced economic weaknesses, alongside concern that Brexit, in particular the apparent failure of our political system to deliver more certain directional outcomes, which business leaders have long been calling for, is causing sustained damage to the UK’s reputation as a place to do business, opportunities still remain for the FM sector. This is particularly the case for smaller FMs in UK or Ireland should larger FM providers hold off on going after contracts whilst the Brexit uncertainty remains. Further opportunities include developing education, training and skills in FM sector as well as developing technologies to address some of the workforce and other issues arising.

As much as Brexit hangs with some uncertainty over the FM sector, FMs can seek to proactively tackle issues such as addressing cost and pricing issues with their existing customers, as well as being smart about how they price and contract in the future.