Engaging with the challenges of offsite

The industry is starting to recognise the potential of modern methods of construction (MMC) and, in particular, offsite manufacturing.

The House of Lords summed up the potential gains in a report produced last year through the Science and Technology Select Committee. Benefits cited included improved quality, enhanced client experience, mitigation of labour shortages, increased regional economic growth, improved health and safety, and reduced environmental impact.

With these advantages in mind, it is unsurprising the government has committed to adopt a presumption in favour of offsite, evidenced most recently by the partnership of Homes England with leading Japanese developer and experienced modular builder Sekisui House, to deliver a £90m housebuilding scheme.  These benefits have had a lot of attention, but we also need to engage with the challenges offsite construction presents to the sector and the way we currently do things.

"Some contractual arrangements may not be construction contracts for the purposes of the Construction Act 1996"

Conventional methods of procurement can leave engagement of contractors and subcontractors until a point in time when the project is quite advanced. This is not a natural fit with offsite manufacturing, where detailed design for manufacture and integration at an early stage is key.

As such, early contractor involvement (ECI), potentially by way of two-stage procurement, makes sense to ensure the cost and time efficiencies and design quality advantages of offsite manufacturing are achieved.

Ownership and responsibility

It also raises big questions for developers like "who owns the goods?", "who is responsible for storage and delivery to site?" and "what happens on contractor insolvency?".

Ways of addressing these issues in construction contracts include:

• requiring the contractor to provide vesting certificates in respect of the offsite-manufactured components;

• requiring the contractor to procure that any specialist offsite manufacturing subcontracts ensure that ownership vests in the developer;

• giving the developer a licence to enter the offsite manufacturing facility to inspect and test (which will go some way towards mitigating defects in design);

• providing that the developer owns the offsite-manufactured components paid for in advance but the contractor retains the risk of storage and delivery;

• stating the insurance requirements to be satisfied by the contractor (including noting the developer's interest on the policy);

• including intellectual property rights in the contract to allow, in the case of contractor insolvency, a replacement contractor to produce offsite-manufactured components that interface with those already produced.

Where offsite manufacturing is used it is likely that developers will need to make substantial payments upfront, well before the components reach site.

To secure the value of the advance payment, the contractor could be required to procure an advance payment bond up to the value of the components. These bonds are on-demand in nature and reduce in value as and when the materials are brought to the site. They can, however, be expensive and it is critical that the guarantee wording is given careful attention.

Risk allocation

The potential to reduce the scale and variety of defects is an acknowledged benefit of offsite manufacturing. However, defects are possible and, on integration, the most minor defect has the potential to have a radical impact on cost and time.

Parties need to consider risk allocation carefully, for example, who is liable for loss and/or damage for defective design, repair and replacement of components and possibly repair and replacement of site-assembled materials impacted by the offsite manufactured components. How these components interface with their onsite counterparts is particularly important.

ECI in design at inception provides an opportunity to consider the buildability of the asset with the offsite-manufactured components and how defects can be diagnosed and rectified most effectively.

Parties should also consider the possibility that some contractual arrangements will not be construction contracts for the purposes of the Construction Act 1996 and, therefore, it may be necessary to add bespoke adjudication provisions to ensure consistency across the project and to avoid lengthy and costly litigation or arbitration proceedings.

Widespread adoption of offsite manufacturing presents challenges but they are manageable. Finding solutions to the issues is no different to solving the bigger issues the industry is facing: the future lies in embracing technology, innovation and collaboration.

Siobhán Kiely is a senior associate for construction at Ashurst.

Original link - constructionnews