By Reubin Iqbal  – GRS – Head of Construction (riqbal@globalrisksolutions.com)

This article outlines the benefits of modular construction to stakeholders and why we will see more of this build method in the future. However, experience has also shown us some of the associated risks of this type of construction. By examining two common applications/examples,  we illustrate how interested parties can mitigate these risks.

In 2017, the UK government launched a cross-industry working group to understand and support Modern Methods of Construction (MMC). This white paper aimed to provide solutions and alternatives to the housing shortage in London. Amongst other items, Category 5 considered:

  1. volumetric podded assemblies, such as whole bathroom and kitchen assemblies; and
  2. panelised /linear assemblies, such as roof assemblies and cassettes.

This suggests that the construction industry as a whole, supported by the UK government, considers that modular construction may well be one of the alternative construction methods to stimulate house building (and general construction) in the UK; it has already been adopted by contractors generally. This may become even more important given that the UK government has earmarked over £34 billion for infrastructure expenditure, together with the pressures of increasing material costs, skilled labour shortages and supply chain delays.

What is Modular Construction?

It is construction or work carried out as part of a wider build, away from the main project site. The buildings or modules (as is common in many instances) can be built at any location (even in other countries), then transported to site and integrated into the main build. In theory, the end product should be no different or inferior to traditional construction methods in terms of form and function.

There are both advantages and disadvantages to this type of remote build, but it is generally accepted that the benefits  outweigh the drawbacks. As will be discussed below, the UK government is also keen to see alternative methods of build to boost domestic dwelling output.

Advantages:

  • Speed: The overall speed of construction. It is estimated that this type of build can lead to a reduction of up to 50% in build durations, with the obvious advantages of shorter financing periods and the associated cost savings.
  • Sustainability: Research also suggests that offsite construction can be up to 40% more sustainable.
  • Controlled Environment: Construction is carried out in a “controlled” environment, often undercover. This optimises safety considerations, and is therefore not subject to weather considerations or associated delays.
  • Local Factors: Local geographic considerations, less labour associated activity at site, reduced noise pollution and general waste and less traffic/congestion near the site.
  • Cost: Initial/early cost certainty for the modules.

Disadvantages:

  • Design: Misinterpretation of the intended design, especially where language and custom barriers are involved. Or worse, a defective design that is not identified until all modules are complete and delivered to site.
  • Remote QA/QC: The lack of Quality Control and Assurance when the construction is remote or where packages are Sub-Sub contracted out.
  • Logistics: The logistics of transportation to site which is often limited by site access and the size of the transporting infrastructure.
  • Customs: Additional customs and paperwork and or delays where modules are supplied from outside the UK.
  • Higher repair costs: Higher costs of remedial works when defects are found or the intended design of the modules is not as intended, or if damages occur at site.
  • Perception: The perceived perception that modular buildings are inferior to traditional construction
  • Standards: A lack of options for standardised modular unit suppliers, with few current suppliers.

Types of Modular Construction

We now discuss problems encountered with podded assemblies and roof construction, and suggest lessons that stakeholders may wish to consider.

  1. Podded Assemblies

It is not uncommon for kitchens and bathrooms to be built off site and then integrated into the main build in a large residential development. Experience has shown that if the design issued to the modular contractor was not followed correctly (and this could be for many reasons), the end product supplied could be defective. When this is extrapolated to hundreds or even thousands of units[1], the main contractor at site is left with an unenviable problem.

Several questions immediately arise:

  • Can the pods be repaired in-situ? (With a corollary question arising as to who makes this decision, and if it is binding on all parties).
  • If so, who is best placed to do it? The main contractor? Or the modular contractor whose fabrication facility may be in another country/territory?
  • If the main contractor performs the repair, what is the warranty consideration?
  • Who bears this risk and cost if the modules have to be removed and returned to the supplier?
  • Will any saving in the build duration now be lost, and conversely, will the build now be delayed?
  1. Roofing cassettes

In many instances today, the roof design of a tall or voluminous building will comprise modular roofing cassettes, typically constructed of timer. These can often be sealed units, intended to be fabricated in moisture-controlled environments, and using a specific timber species with certain moisture parameters. If, for some reason, the factory environment was not adequately controlled or the choice of timber was incorrect, then as and when the cassettes are delivered to site, they could well be defective, with the timer starting to deteriorate (as an example). Any potential defects could also arise from the transportation and storage process.

Again, the same questions as outlined above will need to be addressed if defects or damage are discovered during onsite works.

The contractual arrangements between the parties may apportion the risk of who will undertake the repairs and bears the cost. Its also rare that suppliers accept risk for the Owners’/Developers’/Main Contractors’ consequential losses arising from delay. These matters are generally complex, and inevitably the contracting parties will look to apportion blame which may cause further delay and expense. The situation may be further exacerbated if the modular contractor used external suppliers and contractors.

Lessons from these hypothetical examples (For Developers/Contractors)

  1. Design: It is critical that the design is fully understood by all parts of the modular supply chain. Arguably it is even more important that the design is followed! This means the choice of supplier cannot be underestimated.
  1. QA/QC: It is vital that the main contractor has control of the quality of the offsite construction process. This could be achieved in many ways, but has to be agreed and implemented at the outset of any build, with regular supervision and controls.
  1. Contractual Risk Apportionment: The contracts between the parties need to be clear on who bears the responsibility for defects or damage arising during the construction period, and in any defects period.
  1. Pre-Loss Repair Planning: Thought has to be given to how any remedial repairs can be undertaken if required. For example, it may be that a modular pod is designed to comprise smaller modules, so these could be easily interchanged or repaired if required.
  1. Feasibility Planning: Feasibility studies in advance of material supply chains/lead times and labour for any repairs if units are made abroad.
  1. Building Codes: To ensure that any building codes are now in compliance with UK codes given that the UK is now outside the EU.

Lessons from these hypothetical examples (For Insurers)

  1. Offsite Cover extensions: Consideration should be provided whether the policy will actually extend to cover off site works and/or design.
  1. Repair Protocols: All stakeholders could agree a protocol for remedial works prior to the commencement of the project. This would streamline any post loss difficulties.
  1. QA/QC Clauses: Specific clauses could be agreed at policy inception, with any noncompliance rescinding the policy response.
  1. Serial Loss Clauses: For projects with extensive modules, underwriters could consider a amended serial loss clause to limit their exposure.
  1. Transit Risks: Consideration could also be given to how underwriters can limit their transportation risks, for example by implementing additional risk mitigation measures.
  1. Defect Exclusions: Underwriters could also tailor these exclusions to me more relevant to this type of construction.

Reubin Iqbal  – GRS – Head of Construction

Global Risk Solutions has offices in the US, UK and the Middle East, with Global Network Partners in more than 20 countries, including Latin America, Spain, Turkey and Saudi Arabia. GRS also incorporates an “in house” Chartered Surveying Practice to support Adjusters.

For any further information, please contact:

Reubin Iqbal                 riqbal@globalrisksolutions.com / +44 7442 925503

Adam Humphrey          ahumphrey@globalrisksolutions.con / +44 7545 166210.

[1] Referred to as a serial defect issue.