It would probably be fair to say that, whilst often talked about, adoption of ‘modern methods of construction’ or MMC (which encompasses everything other than traditional practices with components being manufactured offsite and then assembled and integrated into the works) have been slower than anticipated.
Whilst modular methods of construction in particular can offer many benefits and savings, various contractual and practical considerations arise for employers, contactors and the wider professional team which, whether intended or not, slow down adoption of such methods.
This article provides a quick overview of areas in a modular construction project requiring consideration to establish where the risk lies and how it can potentially be mitigated.
Design and Manufacture
Possibly the biggest risk with modular construction is in the design and manufacture process itself.
Sustainability and environmental considerations are a major player in the uptake of MMC. However, concerns, especially from insurers, have been circulating over increased fire risk associated with some forms of MMC and the resilience of materials used in comparison to traditional bricks and mortar. Further, what works in a controlled environment may not work as expected in the real world. If the designs do not equate with how people use buildings, the environmental benefits of MMC will not materialise.
Defects in MMC may have a higher risk of more widespread consequences, which could be more costly to rectify – product defects, workmanship and errors may apply to entire buildings and not just isolated areas and replacement items may have long lead-in times.
As a consequence, Employers may want the opportunity to inspect and reject parts at each key stage. Whist this may appear employer friendly, benefits could arise for the entire project team if a defect is discovered at an earlier stage. The entire project team may also consider if mechanisms providing for a design freeze or change protocol should be agreed, to reduce possible implementation issues.
Ownership and responsibility
Another critical consideration will be ownership and the transfer of title of the various components. Key stages for ownership and responsibility will be manufacture, storage and transport, construction and remedies in the event of termination or insolvency.
With large, front-loaded costs, risks will be heightened if the same is not carefully thought out and well documented throughout the life cycle of an MMC project (possibly by way of vesting certificate or through the use of bonds and guarantees). Where any project is to be debt funded, demonstrating the financial resilience of the supply chain and showing the borrower has an adequate remedy if there are insolvency issues is going to be key to getting credit approval.
Storage, Transport and Integration
Once the manufacturing stage has been completed, it may be that the finished parts are too large to store on site. Careful planning will be required to ensure delivery at the right time for integration into the works. Delays or errors here are likely to lead to much higher costs than with traditional methods of construction, which should be factored into liquidated damages.
Optimism was high prior to emerging from the Covid-19 pandemic, with the NHBC and Savills both producing reports in 2018 and 2020, respectively, suggesting the use of MMC was likely to increase and, whilst uptake has been slow, the future of MMC continues to be reported positively, with Statista reporting an expected global market value of $175bn in 2025.
The arrival of the new industry body, Make UK Modular, seems to further suggest progress is on the horizon and its report, Greener, Better, Faster: Modular’s Role in Solving the Housing Crisis of October 2022, notes the rapid progress of MMC in the housing section over the last five years and that by 2025, there will be capacity to deliver 20,000 low carbon, energy efficient homes across England. This though is still a relatively small number in comparison to the government target published in February 2022 of achieving 300,000 new homes a year in England by the mid-2020s.
Notwithstanding this optimism, the future of MCC in the UK, at least in the short-term, remains unclear. This is highlighted by two recent contradictory developments. On the one hand, Legal & General’s recent decision to cease production at its modular housebuilding factory, following significant losses seven years after its launch, shows just how difficult it is, with planning delays and the Covid-19 pandemic being cited as factors that have had an impact on its ability to build a predictable pipeline. On the other hand, TopHat has manged to raise £70m of additional recent funding including from Persimmon and Aviva. Despite TopHat still operating at a loss, the potential is clearly seen by some as this investment will allow TopHat to ramp up production.
This would seem to suggest then that the use of MMC is not likely to grow exponentially but is likely to be much more organic. As with any new construction method, it takes time for there to be an established and tried and tested way of allocating and managing risk and to achieve economies of scale, but once this has been achieved, the benefits of lower costs, reduced programme times, sustainability and the possibility of reduced waste in the current uncertain economic climate may be enough to propel MMC into the mainstream.
Anna Dyde is a solicitor in the construction and engineering team at Irwin Mitchell
This article first appeared in BE News on 22 May