The announcement by First Base that it is progressing its plans to incorporate a modular construction facility into the regeneration scheme at Silvertown is another bold example of a developer looking to take advantage of the opportunities presented by modular construction.
This is in line with the government’s recent white paper declaring that promoting more modular and factory-built homes forms part of its strategy for “fixing our broken housing market”.
Increasing innovation and government support means we could soon see the return of prefabrication to the UK on a scale not seen since the end of the Second World War.
However, the intervening period has seen both the legal landscape and construction market change considerably.
Construction contracts and subcontracts involve a combination of the supply of materials and the provision of services. Moving more of the construction process from the site into a factory shifts the balance of the arrangements, and value of contracts, towards the ‘materials’ side.
Modular housing leads to a considerable front loading of time and cost. The design and delivery of each module must be fixed at an early stage to allow the supply chain to be managed. This affects the payment profile of the project and makes the arrangements for the passing of title and risk for each module particularly significant. The quality of each module is not monitored in the course of the build, but is instead dependent upon the manufacturer’s quality assurance.
The services element of the build becomes centred on preparing the site for delivery and then installing and finalising each module. This should reduce the risk and value of prolongation claims relative to the total contract value. However, increasing the value of the materials side reduces programming flexibility and increases dependence on the supply chain.
For contracts focusing on the provision of services, labour levels on site can be varied to manage the progress of elements of a build. This option is more limited when large modules need to be ordered, produced, delivered to and installed on site.
Modular construction presents a significant opportunity, but the industry will need to adjust so risks can be allocated appropriately between all parties in construction projects.
13 April 2017
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