For over a decade, there have been calls for the construction industry to adapt to changing societal and economic pressures and adopt Modern Methods of Construction ("MMCs"). Also known as "smart construction", this typically means adopting newer off-site construction techniques that would enable contractors to create projects at a reduced cost and environmental impact. In recent years, several companies have taken great strides in achieving these goals and in this article we will look at what changes have been made and whether MMCs are actually having the impact that it was suggested they would. We will also go on to look at what considerations need to be given before entering into construction contracts that incorporate MMCs.
MMCs are often referred to in conjunction with the use of modular construction methods to build parts of a project off-site and then transport them to the desired location and assemble them together. Whilst there are other forms that MMCs can take (such as through the use of innovative materials, on-site manufacturing methods, smart lighting and heating etc.), the industry currently seems to be focused on improving the effectiveness of modular construction as the processes are already established and delivering successful outcomes.
Modular construction as an idea is not itself a "modern" one and it has taken considerable effort to shift public perception away from the old pre-fabricated buildings that spring up post-war. That perception is now changing and we are seeing more and more projects adopting its use. This is especially true in the housebuilding market, where one recent example shows that Homes England are providing £3.4million of funding to Havant Borough Council via the Government's Local Authority Accelerated Construction Programme in order to speed up the process of constructing 121 new apartments in Havant Town Centre through the use of off-site manufacturing.1 The education sector has also realised the benefit of modular construction and, in particular, the significantly reduced time required to be spent on site at a "live" school. Indeed, we are currently advising the Department for Education in establishing a new £2billion off-site schools framework to deliver more projects of this nature.
This high-level focus on MMCs in the public sector will inevitably lead to an impact on private companies, with some even going so far as to suggest that the role of main contractor on larger-scale public sector projects (like schools) could become "redundant" through the increased efficiency that MMCs are expected to provide.2 Aecom, the global consultancy firm, has already dropped its plans to move into the UK contractor sector partly due to this shift in the market.3 Therefore many companies across the UK are looking more at their MMC offering to supply this increase in demand from the public sector, with notable examples being Stewart Milne4, Mace Group5, and other companies who are focusing specifically on the production of modular homes as a core element of their business like Project Etopia and 4wall6.
Practical Benefits & Risks
Ever since the Government gave public backing of MMCs in a 2005 report by the National Audit Office, MMCs have been actively promoted as a way of working more efficiently in the construction phase of a building project. The modular nature of this construction method means uniformity of quality so those projects that have begun to use MMCs should benefit from having a consistent product across various sites. Perfect for volume housebuilding, this factory-based approach can also make it easier for contractors to take an existing modular building and adapt it to create a new product with just a few tweaks to the construction process.
Producing parts of a building away from the site can also help to reduce the likelihood of delays caused by bad weather, which is an oft-cited cause of delays in construction projects. This would save a contractor both time and money as works can still be carried out away from the main site. As mentioned earlier, MMCs are not limited to the use of modular construction and one big benefit in the use of innovative materials is that these are often more environmentally friendly. Sustainability is a very important factor to consider in the construction industry more widely, and at a recent site visit to Portakabin we saw how organisations are looking to drastically reduce the levels of waste materials they produce on-site by recycling them back into the project elsewhere.
This is not to say that MMCs come without their risks. The additional environmental and financial cost in transporting parts of the works that have been constructed off-site could, in some cases, outweigh the savings that are made by adopting this approach in the first place. Some critics also claim that the method leaves sites at risk of being unsafe, with one notable example being the fire that took place at the University of Nottingham's new chemistry building. This was 70% complete before a large fire completely destroyed the site and, whilst the university was sure that the site met health and safety requirements, others speculated that the large gaps left in the structure because of the nature of modular construction allowed the fire to spread much more rapidly than if the building was being built using traditional methods7. The possibility of this increased risk to site safety could lead to an increase in insurance premiums for those involved in larger projects.
Considerations for Legal Contracts
Based on the steady rise of MMCs throughout the construction industry, and the additional risks that may need to be considered as mentioned above, there will need to be further consideration given to the contractual position of parties on any given project. Some issues that will need to be contemplated include:
- Design – the use of off-site construction may increase the risk of a design not meeting the employer's expectations. On a traditional build, the construction process can be closely monitored on site and halted or adjusted if it is not as expected. This is more difficult when the manufacture takes place in an off-site factory;
- Quality control – whilst in theory the modular process should lead to uniformity of quality, parts of the project will still need to be tested for defects. One defective piece could of course mean that all subsequent pieces are defective. Parties should consider building the liability for these risks into their contracts and accurately record who is responsible for testing and when this testing should occur (i.e. before or after delivery);
- Payment/title – at what stage should payment be made? Presumably this will be before completed units are delivered to the site but careful consideration should be given to this point. Parties should also ensure that there is a mechanism in their contracts that allows for the overall employer to step in and take ownership of the component pieces or completed parts in the event a manufacturer becomes insolvent. Attention should also be paid to defining at what point in the process does title for the plant and materials pass from one party to another, especially given the risk of items being damaged in transit;
- Errors/delays – any errors or delays can rapidly lead to larger-scale issues when using a modular construction method. "Slots" in a factory would need to be pre-booked for manufacturing and it remains to be seen how errors or variations on-site can be dealt with. There are also likely to be limited numbers of modular contractors who would be able to step into a project at short-notice should an initial provider not provide an expected response; and
- Information – parties should consider who owns the project information and the BIM data (if applicable) and who will be liable for errors or faults in this area of work.
What else needs to be done?
Even though MMCs were identified as a key development for the future of UK construction by the National Audit Office's 2005 report, the uptake on this was initially slow. It is only in the last few years that bigger strides (and larger investments) have been made towards achieving what the 2005 report set out to do. It is now expected that the use of MMCs will increase rapidly as that increased investment drives further development to improve quality and lower costs. It is almost inevitable that the gap between construction and manufacturing will start to close and we might finally see the changes that the construction industry has been crying out for.
WBD has a dedicated team of specialist lawyers in both the construction industry and the manufacturing sector with extensive experience in advising on commercial contracts in these areas. If you would like to discuss any of the above in more detail, please get in touch with a member of the Construction and Engineering Team.