Out-Law Analysis | 11 Feb 2021 | 12:36 pm | 5 min. read
Wider adoption of off-site manufacturing and other modern methods of construction (MMC) has the potential to transform the delivery of modern, affordable, high quality UK housing.
MMC is a central concept of the UK government's recently-published 'Construction Playbook', in which it sets out a new longer-term, output focused approach to contracting for public works. It can also help to drive the UK government's 'levelling up' agenda, as production can be located away from centres of demand in the South East to access valuable manufacturing skills and widen employment across the country.
MMC is a general term used to describe a range of alternative off-site and on-site manufacturing techniques. There is a significant emerging market in MMC globally. As the housing and infrastructure construction sectors look to improve productivity and deliver on government infrastructure pledges while dealing with a lack of new entrants and an aging workforce, MMC will become an increasingly important delivery solution.
There is now greater confidence and positivity about the role of modern methods of construction. The challenge is to work out how UK government policies can work in tandem with the construction industry to deliver long-term, structural change
Pinsent Masons, the law firm behind Out-Law, recently chaired a discussion by a group of senior industry experts on accelerating the use of MMC; the barriers that currently exist and what types of government intervention could help to overcome these and expedite take-up.
Demand-led change is crucial to accelerating the use of MMC: to quote one participant in our discussion, "you cannot force something unless people are asking for it".
From an industry perspective, there is now greater confidence and positivity about the role of MMC. The challenge is to work out how UK government policies can work in tandem with the construction industry to deliver long-term, structural change.
The UK government is the largest buyer of construction services in the UK. Although there has been a presumption in favour of government departments using MMC to procure housing, schools, hospitals and infrastructure, more needs to be done to accelerate the use of MMC by government. The approach of Homes England provides an example to follow: by mandating the use of MMC in schemes and providing funding to MMC suppliers, it has sought to create volume certainty and improve the working capital position of MMC developers and suppliers.
Discussion participants suggested aggregating demand into a single, steady pipeline of work, to increase the attractiveness of MMC to private investors and facilitate the shift from pilot projects to best practice.
MMC has the potential to positively disrupt the construction sector, helping the industry to transition away from being project-based to being product-based. Discussion participants told us that the supply pipeline is a particular problem for the construction industry. Low volume contracts are awarded on a project-by-project basis, creating inefficiencies and meaning that long-term demand is not created, as would be the case for product-based manufacturing supply chains.
Greater use of factory-produced component parts by one participant is already leading to better cost certainty for the company, while enabling it to be more agile when buying land.
Discussion also focussed on the maturity of the supply chain to deliver using MMC, and the need for greater capacity across the industry to achieve more widespread adoption.
A lack of bank lending availability for MMC factories was highlighted by participants as a "real barrier". These emerging facilities lack the track record needed to give mainstream lenders the confidence to lend.
Homes England has stepped into this funding gap to some extent. For example, it recently provided £30 million in funding to Swan Housing for its modular factory, as well as £30m debt and equity funding for Urban Splash to allow it to scale up production to 1,000 homes.
The role of the public sector and Treasury will be crucial in helping MMC to mature to the point that it is an attractive proposition for mainstream lenders. We can expect a greater use of conditional funding, with developers required to demonstrate how they are aligned with broader policy agendas such as greater use of MMC, supporting the path to net zero, driving greater social impact and supporting the government's 'levelling up' agenda.
Participants told us that setting minimum standards, having a quality-led agenda and encouraging standardisation will be crucial to the success of MMC, and will help to build confidence among mortgage lenders and insurers. Another called for greater interoperability, as the number of bespoke projects at present prevents the government from supporting the industry in a strategic way.
The government-funded Construction Innovation Hub is looking at implementing manufacturing processes and systems which will enable interoperable tools and parts. This will allow construction companies to use different products from different manufacturers and factories.
One company we spoke to is now moving towards an interoperability model, having initially pursued a volume-driven approach. This company often works on long-term regeneration projects of up to 20 years, and so there is great value to them in having local suppliers provide interoperable components.
The role of the public sector and Treasury will be crucial in helping MMC to mature to the point that it is an attractive proposition for mainstream lenders
Quality and safety is of increasing concern for the industry, so there needs to be an assurance that MMC will drive higher standards and that this is the right route to go down, according to one participant. The NHBC introduced the 'NHBC Accept Scheme' for modular construction to drive increased standards in the industry following the fire at London's Grenfell Tower, but obtaining certification is an expensive and administratively complex process that is likely to be off-putting for SMEs in particular.
Widespread use of digital tools could be a huge catalyst for MMC, but our participants were concerned about take-up, and a lack of digital skills, in the supply chain.
Government departments that procure directly have been operating under a presumption in favour of MMC for some time. However, a participant in our discussion said that this presumption is only just now becoming evident in procurement frameworks. Others said that a harmonised approach from central government, and a focus on making MMC a condition of funding, would be helpful.
One participant explained that their company has struggled with MMC on the housing side because of the procurement route. The business does not have a development arm, so it needs housing associations and developers to decide on MMC earlier in the process so that it can secure funding on that basis.
One company told us it had encountered problems with local authorities not being up to speed with MMC, although generally the approach has been welcomed. It was noted that de-risking the planning element of projects and the time associated with it would be a huge step forward.
One participant gave the example of Dorset City Council, which has adopted a process of pre-approving different types of technologies and using a pattern-book approach. This has worked well, with the participant noting that the approach can be adopted by other local authorities.
Another participant said that MMC could help drive the climate change agenda in the planning process and align with policies at scale.
MMC's role in driving social impact and sustainability is an area of focus for the Construction Innovation Hub. The industry body has published a 'value toolkit' which will enable users to make informed and weighted value-based choices. The idea is that value-based decision making will ultimately become the norm rather than the exception.
Another participant underlined the fact that some 40% of CO2 comes from buildings, so we need to look at their lifetime performance. The participant said that the government needs to focus on MMC to reduce carbon, tackle climate change and make communities fit for purpose in the future.
Co-written by Louise Wager of Pinsent Masons.
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