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Essay: Off-site construction (OSC)

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Multiple terms can been used to describe off-site construction (OSC). These include terms such ‘modular construction’, ‘pre-fabricated construction’, ‘off-site manufacturing’, ‘industrialised building systems’ and ‘off-site fabrication’ (Hairstans, 2015, p.6). Whilst these terms are arguably distinct, they all require buildings, or considerable parts therefo, built at a different location than the location of use (Department for Business Innovation and Skills, Innovation, 2013, p.8). More specifically OSC requires the moving of construction operations, offsite, into a controlled environment where components are built via a manufacturing process (Goulding, Arif, Pour-Rahimian and Sharp, 2013, p3). Accordingly, for this essay, I would define OSC as the manufacturing and assembling of buildings, or considerable parts thereof, before they are transported and installed into their place of use.

OSC is not a new development. Whilst standardisation was commonplace in the 18th and 19th century (Morton and Ross, 2007, p158), due to shortages of materials and labour during the Post-war periods, innovative approaches were required to deal with housing shortages leading to, for example, pre-cast concrete (Taylor, 2009, p.4).

More recently the push towards OSC is most notably exemplified, in a UK context, via Egan’s report. (Egan, 1998). Egan studied other industries, including car manufacturing, and posited that applying methods from other industries would mean “greater efficiency on site, arising from, for example, using standardised components, precise engineering fit and the use of extensive pre-assembly. We also believe this will significantly improve quality” (Egan, 1998, p.20). Egan noted the production of cars is efficient, and capable of incorporating technological advances, and there was no reason that the building industry could not do the same. Accordingly, a construction industry incorporating modern technology, adopting standardisation and pre-fabrication, and co-ordinating and controlling all of the inputs in the construction process would inevitably lead to better quality and a fairer price (Morton and Ross, 2007, p.150). However, a “building is not a motor car – or is it?” (Morton and Ross, 2007, p151)

Improvements in Quality, Speed and Cost

OSC offers a series of advantages to the traditional on site approach. These advantages are not baldy stated. OSC can deliver quality buildings, reduce costs and provide faster completion times with this being evidenced in a number of different countries including Japan, The USA, the UK, Malaysia and Australia (Goulding, Arif, Pour-Rahimian and Sharp, 2013, p4).

Quality

Advocates of OSC posit it has advantages in relation to quality. Firstly, on site production requires workers to travel to the site. The workers may be unfamiliar with systems and/or require some degree of training. OSC facilitates a more stable workforce, involved in repeat processes, who can be trained. As a result OSC enables workers to make a higher quality end product (Gibb 1999, p.40).

Moreover, a manufacturing process, within in a factory, provides a higher degree of quality assurance leading to less snagging and defects (Gibb, 1999, p.40-41). Facilities using mechanisation, with in-built systems insuring products meet building codes, gives predictability, reliability and assured outcomes (Hairstans, 2015, p.7). With components being made off-site, and components being made ahead of time, components can be inspected and appropriate remedial action taken if necessary (Gibb, 1999, p.42). Accordingly, with OSC quality is easier to guarantee than on a traditional site (Department of Trade and Industry, 2001, p.13).

Looking to the future, given RICS have identified skills shortages in surveyors and bricklayers, as recently as January this year (Royal Institution of Chartered Surveyors, 2016), and with the potential curtailment of freedom of movement of workers due to Brexit, as well an aging workforce (Williams and Taylor, 2014), OSC is well placed to deal with declining workmanship standards and the current and future labour shortages (Department of Trade and Industry, 2001, p.13).

Speed

There are advantages to using OSC for time management. All construction projects have start and end dates. Expediting the process will, inevitably, have a positive effect.

Firstly, OSC facilitates programming to take place simultaneously as per the following illustration (Hairstans, 2015, figure 6).

The above illustrates how programmes can be reduced by work being done at several locations simultaneously. Critical path time is reduced because onsite work and OSC can be done concurrently (The Building and Engineering Services Association, 2015, p.16). Removing elements of a sequential programme reduces the risk of scheduling difficulties and weather risks. Moreover, concurrency of activities reduces mobilisation time. Build time is further reduced by higher production rates in factories which also reduces on site commissioning time via factory testing (The Building and Engineering Services Association, 2015, p.16).

Studies by Yorkon, an OSC supplier, show 96% of OSC projects are delivered on time as opposed to 63% of on-site projects (The Building and Engineering Services Association, 2015, p.8). Given the Government has set the target of 50% faster construction times by 2025, it is clear OSC has a role to play in delivering this (The Building and Engineering Services Association, 2015, p.12).

Cost

OSC provides for streamlining on site, increased productivity on and off-site, a reduction of site accidents, and the removal of site unknowns which all provide opportunities to reduce costs (The Building and Engineering Services Association, 2015, p.15). These claims do not exist in a vacuum with studies showing 94% of OSC projects completing on budget with traditional only at 49% (The Building and Engineering Services Association, 2015, p.8).

The earlier the building is handed over, the earlier the builder can recoup their investment. When using OSC, in smaller projects, it has been calculated that building time can be reduced by 50%-60% and in larger projects up to 25-30% (Krug and Miles, 2013, p15). When build time is reduced, this can mean savings in terms of financing costs as illustrated below (Krug and Miles, 2013, p15).

Another benefit to reduced working time is better cash flow. Cash flow is a well docmented reason why projects are delayed (Morrison and Trushell, 2016, p.680). A predictability of cash flow is of enormous benefit to the contractor. Additionally, there is scope for reducing working capital requirements, for the contractors, and passing this onto suppliers. These advantages free money to invest, meet other obligations or, in the worst case scenario, avoid bankruptcy (Department for Business Innovation and Skills, Innovation, 2013, p.15).

OSC provides for more predictable cost modelling. A predictable price, not subject to fluctuations, including adverse weather conditions, means costs can be more accurately estimated. OSC further removes waste from the process of construction. This increases profitability, and quality, as waste does not add worth (Blockely and Godfrey, 2000, p. 170,).

Finally, with predictable and improved quality, there will be a reduction in snagging and defects decreasing the contractor’s back end costs after completion (Department for Business Innovation and Skills, Innovation, 2013, p.15).

Environmental Impact of OSC

OSC provides benefits to the environment including a reduction in energy-use, a lower carbon footprint and reduced transport pollution. (Department for Communities and Local Government, 2013, p.28). Given the Department for Trade and Industry estimate the building, occupation and maintenance of buildings is the cause of approximately 50% of the UK’s emission of Carbon Dioxide (Morton and Ross, 2007, p151, p.194), it is clear the Construction Industry has room for improvement.

The building process requires a lot of energy. OSC can reduce the energy required because OSC facilities are better placed to control energy use, and emissions, than traditional on-site construction. OSC facilities are also better placed to utilise alternative energy sources and/or renewables (Gibb, 2013, p.1).

According to the Scheme of Environmental Evaluation by the European Program Euro House, OSC can, during the entire life cycle of the building, reduce CO2 emissions and annual energy consumption by up to 60% (Russo Ermolli, 2007, p.976). The same evaluation posited up to 50% reduction in water use for the construction of an average home.

The construction industry, in the UK, generates three times the amount of waste that U.K. households do, per annum (Morton and Ross, 2007, p181). It is suggested that OSC facilities are better at reducing waste and recycling materials (Gibb, 2013, p.1) and studies outline OSC can facilitate up to an 80% reduction on waste materials (Russo Ermolli, 2007, p.975).

However, OSC requires transportation which creates issues with volumetric construction and the transportation of ‘air’ (Department of Trade and Industry, 2001, p.29). Nevertheless, this is quantifiable. Most onsite projects do not include the carbon miles for transportation of raw materials or transportation of workers to the site. Additionally, given the advent of flat-pack assemblies there is scope to reduce the issue of transporting ‘air’ (Gibb, 2013, p.3). Moreover, there is scope to use more sustainable methods of transports e.g. rail, ship or barge which can lead to 70-90% reduction in fewer vehicles (The Building and Engineering Services Association, 2015, p.21).

Use of OSC at remote locations

An urban site can rely on receiving supplies immediately, have access to qualified staff and spare parts etc. (Harris and McCaffer, 2006, p343). Accordingly, it is suggested OSC is more suited to an urban environment (Gaze, Ross,K , Nolan, E, Novakovic O and Cartwright, C, 2007, p5).

Construction at remote locations has numerous difficulties including skill shortages, lack of infrastructure, difficulties accessing water, lack of telecommunications, lack of site supervision, difficulty of transporting materials and the removing of waste. (McAnulty, and Baroudi, 2010, p.2). Studies also show that construction, at remote locations, has low productivity due to alcohol intake and homesickness (McAnulty, and Baroudi, 2010, p.2). Within a U.K. context plant for OSC is in short supply which would be the case in remote locations (Gaze, Ross, K, Nolan, E, Novakovic O and Cartwright, C, 2007, p6). Additionally, OSC in remote locations will be limited due to size and weight limitations on certain routes (The Building and Engineering Services Association, 2015, p.34).

Conversely, OSC facilitates better planning for equipment to be ordered in advance (The Building and Engineering Services Association, 2015, p.22). Furthermore, in the example of a pre-fabricated house, builders only require to be on site for 5-7 days (Usman and Ibrahim, 2015, p1456). Accordingly, OSC enables easier on-site management and, with fewer materials and tradesmen required, projects are shorter in duration (The Building and Engineering Services Association, 2015, p.13).

An issue with OSC during the 1960s, with high rise flats, was faulty workmanship. (Department of Trade and Industry, 2001, p.11). OSC at remote locations shall still require labour skills, but contractors who properly train erection crews, as well as develop appropriate organisational skills, will be able exploit opportunities more effectively (Gaze, Ross, K , Nolan, E, Novakovic O and Cartwright, C, 2007, p6).

Use of OSC in adverse weather conditions

Construction is vulnerable to inclement weather e.g. extreme cold debilitating construction equipment (Harris and McCaffer, 2006, p343). Adverse weather conditions often lead to extension of time requests and/or compensation events. Adverse weather is expected, and accounted for, in any construction project.

OSC provides for mitigating risks in the early stages of a project before work begins (National Audit Office, 2005, p20). OSC, by definition, is off-site, and therefore the site is unaffected by weather conditions. Accordingly, OSC can reduce delays by reducing time on site. Sites are less vulnerable for a shorter time which decreases the chances of weather delay (Department of Trade and Industry, 2001, p.13). Additionally, OSC can provide a quickly constructed weather tight shell allowing for internal fittings to be moved forward in the process (Department of Trade and Industry, 2001, p.13).

Risks, with OSC, primarily increase in the early stages of a project before on-site work starts. However, when weather stops on site operations, and given OSC involves a larger outlay at the outset, there is less scope for postponing costs which could lead to cash flow issues. Failure to deliver will lead to increases in time and cost (National Audit Office, 2005, p20). Hence, a key aim in OSC should be to provide a weather tight environment early as possible.

Types of dispute which might become more common if off-site construction in become used more extensively

A definition for ‘dispute’, for this essay, is where parties differ on their interpretation of a contractual right leading to a dispute resolution process (Acadis, 2016, p.10).

The potential for OSC to increase areas of dispute is extensive e.g. OSC aims to incorporate new forms of technology hence there is potential for disputes over intellectual property . However, I intend to focus on areas of dispute which are more likely to occur and how this may be mitigated.

Disputes in the construction industry often occur within the supply chain. OSC, inevitably, means a change in the supply chain. With a new supply chain, comes new risks and therefore new disputes (Williams and Taylor, 2014). OSC goods are produced and, ordinarily, stored off-site by the manufacturer to be delivered ‘just in time’. If OSC increases in the U.K, disputes over title to the materials required to manufacture the goods and thereafter the goods themselves, especially when payments are front loaded, will be a leading cause of dispute and most likely in insolvency situations (Williams and Taylor, 2014).

It is settled law, for UK purposes, that when materials are incorporated into a building title will have passed to the employer (Morrison and Trushell, 2016, p684). The issue of manufactured goods, stored off-site or on-site, is not as clear cut. Materials transformed in a manufacturing process no longer ‘exist’ and therefore title to the materials is extinguished, unless they are not irrevocably transformed (Morrison and Trushell, 2016, p.685). Ownership will be a fertile ground for obdurate disputes which in turn will create ancillary disputes regarding off-site storage bonds, retention of title bonds etc.

In dealing with disputes over title, perhaps the safest option in a Scottish context, will be for the Employer to enter into a Contract of Purchase, subject to the Sale of Goods Act 1979, directly with the Supplier. However, in England title can pass on payment in a construction contract (Morrison and Trushell, 2016, p.686). This small difference illustrates a pertinent point that supply chains across these jurisdictions, and beyond, run the risk of multiple disputes across multiple jurisdictions (Harris and McCaffer, 2006, p.346).

New risks mean contracts will need to evolve. Contracts have evolved from traditional, to management orientated, to design and build and partnership (Harris, and McCaffer, 2006, p.346). The next evolution may be ‘design, supply and construct’ contracts with the employer directly procuring the design and the product from the manufacturer, and engaging the builder to install and construct (Williams and Taylor, 2014).

In conclusion OSC has many benefits, but contractors must be aware of the risks. Perhaps a clue is found in William Levitt’s approach to pre-fabricated homes in post war America. Levitt had, for example, timber ready cut at the correct time from his own mills, Levitt’s success is an example of mitigating forms of dispute via an integrated production team and just in time delivery (Morton and Ross, 2007, 160) and is one which contractors should consider.

19.11.2016

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