As various pressures such as efficiency, labour shortages and environmental impact continue to increase on the construction industry, there is an ever increasing move away from traditional methods of construction and towards Modern Methods of Construction (MMC) to find the solutions.
Modular Construction

Whilst MMC is used to encapsulate a great number of different methodologies, undoubtedly one at the forefront in this area is Modular Construction.

Background

Modular construction is the term generally used to describe a method of construction whereby a significant proportion of the assembly of the parts of a building is moved off-site, usually to a manufacturing-style, factory-based environment. Once assembled, these “modules” or “pods” are transported to site and connected together, usually attaching to a frame or podium that has been constructed on-site in a traditional manner.

Whilst not necessarily new to the UK, the uptake in modular construction has been significantly slower than in areas such as Asia-Pacific, where modular construction is being adopted and pushed to its limits with increasing regularity. Investment by entities such as Goldman Sachs, who have put GBP75m into becoming the majority shareholder of modular construction specialist TopHat, has accelerated the growth and exposure in recent years in the UK, and looks set to bring it into the mainstream.

What are the benefits?

As a major contractor with significant experience in modular construction recently summarised, it should be ‘faster, better, cheaper, greener and safer;’

  • Faster – Estimates vary, but it is generally considered that modular construction should lead to anywhere from a 30-50% reduction in total build time, due to; efficiency gains made by the factory, the ability to build construction modules simultaneously with the groundworks and frame being constructed on-site, the ability to deliver modules as and when they are ready to be installed, and reduced weather impact than on-site.
  • Better – This is clearly a subjective point, however the level of quality control achievable in a factory environment far outweighs what is reachable on-site. Modules can also be constructed to be more energy efficient, and detailing can be more precise when using machines to cut and shape materials to degrees of accuracy not achievable by the human hand.
  • Cheaper – Whilst typically cost-neutral from an overall construction value perspective, the reduction in total build time generally results in cost-savings, along with the ability of a client to begin earning revenue from their completed asset more quickly.
  • Greener – As well as being able to deliver greener buildings, modular construction usually results in a significant reduction in the levels of site traffic and deliveries, alongside a drop in fossil-fuel powered machinery on-site.
  • Safer – With significant proportions of the build programme being undertaken in a clean, controlled, well-lit and heavily monitored environment, and with less manual labour on-site, modular construction should be significantly safer.

How about key challenges?

Like any new methodology, it is not without its challenges;

  • Building design has to be finalised (and fully locked down) much earlier than with traditional methods of construction in order for it to work with the foundations and superstructure.
  • The agreement of ownership, and issuance of vesting certificates, can be a significant challenge if large volumes of materials/modules are either being stored off-site, or being transported significant distances in order to reach the site. Deciding at which point ownership transfers from modular manufacturer to developer can be challenging.
  • The above challenge requires financiers/funders of the development to be far more hands-on and involved in the production process in order to facilitate smooth issuance of vesting certificates and payment, otherwise efficiency gains can be quickly eradicated due to financial hold-ups.
  • The ability to move between modular manufacturers on a given project is currently extremely limited due to the large variance in systems and data being used across the industry.
  • Traditional forms of contract require bespoke amendments, guided by the eye of a lawyer experienced in the world of modular construction, in order to allow for elements such as testing being incorporated within the scope of works.

What does this mean for insurance?

Whilst not new to the UK construction market, insurers are still wary of modular construction, as generally they have not yet built up enough of an experience in how these buildings perform over time to have reliable actuarial models upon which to base their underwriting. As a result, there are pockets of expertise within the market, but the general attitude is one of nervousness, usually resulting in higher rates.

Key considerations to be aware of are linked to Professional Indemnity (PI) insurance;

  • The aggregation/series of claims clause – Due to the significant potential for multiple, identical and repetitive defects in a modular design, it is vital for the manufacturer/contractor to have an appropriate clause in their PI insurance policy wording. This should allow for only one policy excess to be applied in such a scenario where each defect has arisen out of the same proximate clause, rather than each defect and claim having its own excess applied, as this could result in a huge variance in what is paid out in the event of a claim. With the rise in PI excesses in recent years, it could even be the difference between a claim breaching the excess at all, or not.
  • Fitness for purpose – Partly a contractual issue, partly an insurance issue – employers tend to push for a fitness for purpose obligation in modular construction due to the increased reliance on the modular manufacturer for the design and performance of the building. This should be avoided wherever possible as insurers are extremely reluctant to offer protection against fitness for purpose clauses; and where unavoidable, please consult your broker as early as possible in the process to see what options you have available to you.

This is growth market, and one of the many directions in which our industry is adopting in order to achieve the aggressive government housing and emissions targets. Therefore, modular construction is likely here to stay – how far the boundaries are pushed and how quickly it is adopted, however, remains to be seen. Mark Farmer’s recent appointment as the government’s champion for MMC indicates the accelerator may be about to be engaged.