Yikes, here comes Brexit! What next for the UK’s sourcing industry?

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In case you missed it, the Great British public caught the world off guard when, on 23 June 2016, a small but significant majority voted in favour of the UK withdrawing from the European Union. Much like the termination of an outsourcing agreement without detailed exit provisions and a well worked out plan, the decision has sparked political and economic chaos, as the UK is plunged into a period of prolonged uncertainty with much wider ramifications for political stability and economic growth across the EU and beyond.

What does this all mean?

From a UK-based outsourcing lawyer’s perspective, it is very much a case of wait and see. The English law regime applicable to outsourcing and procurement remains, for the time being, “as is”. Until parliament moves to repeal or amend the European Communities Act 1972, UK laws, which include the application of the EU Treaties, remain unchanged. Moreover, laws and regulations which have been transposed into English law in response to EU Directives in diverse areas such as working time, agency workers, data protection and TUPE laws will continue until further notice.

None of these issues have yet been worked out, so it’s very much a case of wait and see. 

Disengaging the UK legal system from the EU’s will be no simple task. The two-year limit which runs from the UK formally triggering Article 50 of the Lisbon Treaty will be challenging to say the least.  Sir David Edward, former judge at the Court of Justice of the European Union in Luxembourg could not have put it better when he said “withdrawal from the Union would involve the unravelling of a highly complex skein of budgetary, legal, political, financial, commercial and personal relationships, liabilities and obligations.”

In terms of where we are headed, much will depend on the way in which the exit is carried out, including maintaining our relationship with the EU through the EEA (AKA the Norway model) or  through the EFTA (AKA the Switzerland model). Whatever model is adopted, we can certainly expect changes across a range of legal topics which impact outsourcing and procurement contracts including intellectual property, data protection, competition, tax, and employment law, as well as cross border arbitration and litigation.

In the public sector arena, relevant EU laws are largely transposed into domestic laws such as the Public Contracts Regulations 2015. These will not be repealed overnight. British firms competing for public procurement contracts in other EU member states will still be guaranteed access to the public procurement market by the Procurement Directive for the time-being. But in the utilities (telecoms, post, water, energy) and defence sectors there are already specific rules allowing the market to be closed to bidders from third countries, which is what the UK will become.

Not the decision wanted

Kerry Hallard, CEO of the UK’s National Outsourcing Association, spoke for many in the industry when she said that…“[t]his is certainly not the result that members of the National Outsourcing Association wanted; this is not the result that the British outsourcing industry as a whole wanted. That fact was clearly demonstrated back in March when we surveyed the UK outsourcing industry, and again just two days ago when we polled over 200 industry representatives on their beliefs regarding Britain’s EU membership at our NOA Symposium conference.”[1]

There is widespread belief that passporting for UK-based financial services firms will come to an end,  and concern about how the UK can continue to participate in the Digital Single Market post withdrawal, all of which will no doubt impact the industry.  Risks include the loss of talent to financial centres such as Dublin, Amsterdam and Frankfurt, which may well shift the centre of gravity away from the UK and discourage future inbound investment. This is not confined to financial services – with EasyJet, one of Europe’s largest budget airlines, and Vodafone, the telco giant, both having announced that they are mulling whether to relocate their UK headquarters in light of Brexit.

Keep calm, and carry on…at least for the time being

David Noble, Group CEO of the Chartered Institute of Procurement and Supply, cautions[2] that procurement and other industry professionals must act as the suppressor of panic, not the creator” and counsels that increased attention should be “paid to the supply chain and currency exposure.” 

Procurement, outsourcing and supply chain contracts, especially for cross-border goods and services, will need to be reviewed, for potential impacts, including looking at clauses dealing with topics such as force majeure, material adverse change, compliance with laws, change in regulation, currency exchange and inflation / cost of living allowances. These issues will also increasingly feed into future contract negotiations.

[1] http://www.noa.co.uk/documents/Brexit%20Decision%20Contradicts%20Beliefs%20of%20Britain%E2%80%99s%20Outsourcing%20Industry

[2] http://www.cips.org/en/supply-management/news/2016/june/calm-down-step-up-and-lead-the-way-and-says-cips-group-ceo-david-noble/