October 7, 2022

How can I protect my construction business from the impact of fluctuating exchange rates?

Following the Chancellor’s mini-Budget in September, the longstanding drop of the pound’s value accelerated, placing a spotlight how exchange rates affect businesses.

As with all sectors, fluctuating exchange rates are considerably affecting the construction industry, and protecting yourself against this is vital.

Delays, disputes, and price rises

In general, construction projects are a high-risk business pursuit. So, when carrying out projects overseas, varying foreign exchange rates can further complicate matters.

By slowing development and creating delays, problems arise for subcontractors, such as arbitration, disputes, abandonment, and litigation.

This also results in cost overruns, due to the cost of raw materials increasing.

What steps can I take to protect against currency fluctuations?

Contracts are important for decreasing the chances of disputes arising, as well as sharing risk between parties.

When it comes to exchange rates, you can specify the exchange rate to be used in consideration for the goods or services in question and apply that regardless of any fluctuations during the life of the contract.

An example of such a measure is in secondary option X3 of the NEC construction contracts, which can be used with main options A or B to apply an agreed exchange rate.

What if my current contracts aren’t serving my interests effectively?

It doesn’t always have to be bad news. If you are an exporter, the changing exchange rates are more cost-efficient for your customers, meaning you may consider boosting the volume bought and sold.

In cases such as these, it is likely to be worth renegotiating the contract to clearly outline this benefit.

However, if your current contracts are making an existing commercial relationship unprofitable or impractical, you should seek legal advice to discuss your options.

Are you facing difficulties with fluctuating exchange rates? Contact us today for advice.