Is modular construction a fix for the industry’s problems?

Answer

This article was originally published on 30 January 2024.

Some of the major challenges and common sources of dispute in the construction industry include the following:

• Time, cost and quality – these three combined directly impact profitability, client satisfaction and the overall success of a project.

• Sustainability – cost and speed are often prioritised over sustainability, which leads to excessive waste and environmental degradation.

• New legislation – the Building Safety Act 2022 (the BSA 2022) has introduced major changes to the construction industry and how buildings are regulated.

This article is going to explore how modular construction responds to these challenges.

What’s modular construction?

Modular construction is a method where building components (modules), typically comprising of 60 to 90% of the overall structure, are manufactured off site in a controlled factory environment and then transported to the construction site for assembly. The global modular construction market was worth $91 billion in 2022 and is expected to grow to $120.4 billion by 2027. But how does this method respond to the industry’s challenges?

Time, cost and quality

Constructing modules in a controlled factory environment can improve efficiency and encourage enhanced quality control. According to a report from McKinsey & Co, modular construction can lead to 20 to 50% faster projects. One reason for this is that the majority of the construction work is done using standardised processes and components. This, in turn, is said to:

• reduce the likelihood of variations in design and scope; and
• minimise material substitutions and/or last-minute changes to construction practices.

Given that the modules are also created in a factory-controlled environment where there are fewer on-site disruptions, specifications can be more consistently met and the overall delay to a project is reduced. This being said, modular construction isn’t entirely rigid and does offer flexibility for variations where needed. This allows for easy expansion, reduction and reconfiguration to accommodate changing needs.

Secondly, constructing modules off site in a controlled environment can reduce financial risks by minimising unforeseen expenses relating to weather, material wastage and labour inefficiencies. Quicker construction projects enable developers to meet tight schedules and avoid penalties for delay, reducing total overall spend.

Thirdly, it’s said that modular construction can offer significantly greater quality control compared to traditional construction methods. The factory-controlled environment allows for increased quality control measures to be implemented, helping to ensure that the final product meets high standards and specifications. Standardised building techniques are used to ensure consistency across modules, mitigating disputes over workmanship and performance.

Sustainability

Based on findings by the World Business Council for Sustainable Development, the construction industry’s emissions account for approximately 40% of global greenhouse gas emissions. Other sustainability-related issues in the industry include destroying large areas of land for processing and landfilling. As a result, there’s been a recent push towards sustainable building practices.

According to a Construction Scotland Innovation Centre report, 86% of waste materials in modular construction are recycled, which is higher than the 75% in traditional construction. This focus on the reuse and repurpose of modules in different locations or configurations promotes sustainability by expanding the lifespan of building components and reducing the demand for new materials. Recycling during both housebuilding and deconstruction allows for surplus materials to be used in future projects, enabling a significant reduction in construction waste and landfill usage.

A further eco-benefit of modular construction is its ability to produce energy-efficient buildings. Factory-built modules can be designed to incorporate superior insulation materials and tighter seams can minimise heat loss compared to traditional bricks and mortar, improving a building’s overall thermal performance and making bills cheaper for residents. Producing buildings with better insulation will reduce energy consumption from the outset and throughout the property’s lifecycle.

Finally, in 2021, transport was the largest emitting sector of greenhouse gas emissions, producing 26% of the UK’s total emissions. As modules are produced in a centralised location, the need for excessive transport is reduced – leading to minimised fuel consumption and carbon emissions. 

New legislation

The BSA 2022 aims to enhance the quality of buildings by establishing standards, mechanisms and a regulatory framework to ensure compliance and mitigate risks.

The BSA 2022 provides for gateways, which ensure proper oversight and compliance at various stages of the construction lifecycle. The gateway system allows the Building Safety Regulator (BSR) to monitor specific residential projects, as follows:

• Gateway 1: the parties must provide information to show that fire safety requirements have been considered and incorporated with their planning permission application.
• Gateway 2: the BSR must confirm that it’s satisfied that the building’s design meets the requirements of the Building Regulations 2010 before works start.
• Gateway 3: the BSR carries out a further assessment at the end of the construction phase to confirm whether the work complies with the building regulations, with “completion” then certified allowing for the building to be occupied.

Additionally, the BSA 2022 has implemented a more rigorous change control requirement on higher-risk buildings (those more than 18 metres or seven storeys high, and containing two or more residential units). Any changes deemed ‘major’ or ‘notifiable’ now require additional review and approval by the BSR.

Modular construction can help navigate this complex legislation because it promotes consistency, transparency and quality assurance.

Modular construction relies on standardised components and processes, allowing a potentially easier path through each gateway. Consistency makes it easier for the BSR to verify that each module meets the required safety and quality standards at each gateway stage – streamlining the process and making inspections more efficient. Once the BSR is familiar with the designs and specifications, assessments and approvals can hopefully be facilitated quicker.

The uniformity that underpins modular construction has been said to reduce the likelihood for variations. Variations can complicate compliance with the gateways. A minimisation of design changes and material substitution aligns with the gateway process, which emphasises rigorous assessment, verification and documentation to ensure compliance. Having limited variations also enables better traceability of materials and processes, facilitating the tracking verification of compliance with the BSA 2022.

This uniformity can also enhance quality assurance by reducing the potential for errors or defects, which could compromise building safety. This may align with a smoother journey through the gateway process of the BSA 2022, ensuring that each module undergoes scrutiny and verification before integration into the final structure.

By minimising complexities and uncertainties through numerous variations and inconsistencies in construction processes, modular construction can help to facilitate compliance with the rigorous inspections imposed by the BSA 2022.

Is modular construction all its stacked up to be?

Modular construction requires large amounts of money up front. This can create financial difficulties for companies, especially if there are any cash flow problems or unexpected costs that arise during the project. Given the high risk of insolvency in these projects, the employer will want to ensure that the modules aren’t caught up in the insolvent estate of the developer, especially if they’re stored at the contractor or subcontractor’s site. Therefore, it’s advisable to have strictly drafted ownership provisions, which allow for ownership to pass immediately upon payment or application for payment of the instalment. Vesting agreements, which clearly delineate and formalise the ownership rights and responsibilities pertaining to materials in a construction project, are vital to avoid the adverse consequences relating to insolvency.

A further issue that’s common in modular construction projects is the risk of damage to modules. Transporting large, prefabricated units exposes the modules to potential impacts and unwanted environmental conditions. It’s even more of a risk if assembly is a long way from the building site, which is likely if the construction site is an urban area. This not only increases the risk of damage to the modules, but may also increase transportation costs and have a negative impact on the environment through burning fossil fuels to facilitate such transport, arguably off setting some of its eco-friendly selling points.

If a construction site isn’t ready to incorporate the modules, or if issues relating to insolvency cause significant delays to a project, modular units might be left for long periods, exposed to adverse weather conditions or left unsecured with the potential to get damaged.

Damaged modules increase the potential for disputes to compensate for the damage or, more worryingly, compromise the structural integrity of the building in which they’re incorporated. Therefore, it’s advisable for employers to have watertight indemnities, advance payment bonds to provide security or even the use of an escrow account to minimise the loss associated with damaged modules.

Conclusion

Modular construction is a challenging process that often requires employers to spend a lot of money upfront. Concerns about insolvency and legal complexities, which must be considered when engaging in such a project, may put some employers off using the process. However, employers should be encouraged to embrace modular construction for the solutions that it offers to key challenges in the construction industry, including time efficiency, cost savings and enhanced sustainability. Furthermore, as everyone in the construction industry continues to grapple with the complexities of the BSA 2022, modular construction may offer a potentially simpler means of navigating this new legislation.

Tomos Rossiter is a trainee solicitor at TLT LLP.