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By David Collins, Director, Cost Management | 14 February, 2021

Modular and prefabrication are often touted as being able to reduce construction costs by improving production and delivering a faster alternative to conventional construction methods. But is this really the case?

In this article, we explore the advantages and constraint and how to move forward while mitigating risk.

Modular and prefabrication currently represents 3-5% of Australia’s $150 billion construction industry.

If we’re to believe the predictions, that could grow to 15% by 2025, creating 20,000 new Australian jobs and adding $30 billion to the country’s economy.

Prefab construction is something that forward-thinking governments, investors, manufacturers, developers and builders are looking at, but it must be tempered with a clear understanding of advantages versus constraints, and a proper assessment of opportunities and how to mitigate the risk.

As it stands today, there is growing potential for modular construction – opportunities to accelerate project timelines, reduce costs, advance innovations and product quality – and bring value to stakeholders.

Already steadily on the rise, the pandemic may act as an accelerator to the pressing need for more efficient and affordable solutions to labour and housing shortages. There are strong signs of what could be a genuine broad-scale disruption in the making. It is already drawing in new competitors—and it will most likely create new winners and losers across the entire development and construction ecosystem.

The opportunity must be tempered with a clear understanding of the risks and surrounded by a team with a thorough understanding of the technical intricacies needed for execution.

Terminology

Modular / 3D / volumetric construction

Prefabricated construction of three-dimensional modules of enclosed space. Entire modules, such as rooms or pods, are manufactured and assembled in a factory and then delivered to a site for installation. A building may be constructed entirely of modules, or portions may include conventional construction. Modular buildings may be wood, steel, concrete, or a combination, and as many stories as building codes allow.

Prefabricated (prefab) construction

Any component of a building – flat or modular – that is manufactured in a factory and then transported and installed on a building site.

Design for Manufacture and Assembly (DfMA)

The combination of two methodologies to deliver a design and construction process that combines the manufacture of building components, such as wall systems and facades, in a safe, clean and efficient factory environment, with on-site construction assembly. Essentially the design of a product and it’s parts for ease of manufacture and ease of assembly on site. Kit of parts or volumetric.

Panelised construction

Manufacturing of flat panels such as walls, floors and ceilings in a factory. These are transported and assembled onsite to form three-dimensional spaces and a completed building.

Advantages and constraints

Of course, modular construction has both advantages and constraints in comparison with conventional construction methods. Following are some of the most significant.

Advantages

Reduced onsite construction timelines: Manufacturers build modules in indoor facilities, unaffected by weather. Concurrently, demolition, excavation, and building foundations can take place onsite. This can translate to shorter timelines for delivery, greater savings, quicker occupancy and faster return on investment.

Greater cost certainty: Efficiency of construction, along with a greater ability to control costs, labour, schedules and delivery mean that builders benefit from fewer budget overruns by using modular construction compared with conventional site-built construction.

Better quality control: Modular components are fabricated in a controlled environment that facilitate quality control. Modules are manufactured in climate‐controlled facilities, which protects materials from exposure to damaging weather conditions. Precision manufacturing equipment and software, combined with continual supervision of production processes, helps to ensure consistent, quality products.

Labour optimisation and safety: Construction projects are labour intensive, and the industry has an ongoing challenge attracting enough skilled workers. Labour shortages are a chronic problem that adds time and costs to many projects. Modular construction helps to optimise a project’s labour force. Fewer job activities and fewer workers are required onsite, while in the factory, an assembly-line approach and the use of technology streamlines processes and increases worker productivity. Project safety is also optimised. Since prefabrication takes place in a quality-controlled factory with specialised equipment, it could be considered a safer work environment than onsite construction, with fewer instances of injury.

Environmental sustainability: Prefabrication has a reputation for having a lower environmental impact than traditional construction. Producing less waste and using more efficient recycling and waste disposal, in addition to emitting fewer greenhouse gas emissions are a few of the claims. Modular components reduce the time and intensity of onsite construction, which reduces the amount of waste materials, emissions, noise pollution, and construction traffic and road closures.

Increasing customisation: Advancements in construction design software and digital tools are enabling more customisation options. Building designs, features and options are increasingly comparable to site‐built construction.

Greater benefits for end-users: For buyers, tenants and other end users, modular prefabrication processes and innovations provide more affordable buildings, high-quality materials and components, faster construction and more reliable close and move‐in dates.

Constraints

When determining whether modular or conventional construction will be most advantageous for a project, there are a number of constraints to consider.

Capacity limitations: Australia has only a modest amount of modular manufacturing capacity among a relatively small number of modular manufacturers. While most plants can build modules for any type of building, retooling and adapting worker skills for different types of products can be costly. Since modular construction projects tend to involve only one or a few suppliers, this increases execution risk. For manufacturers, purchasing and setting up the facilities and processes to construct a modular building represents a large initial upfront investment; this can restrict the financial viability of undertaking smaller projects. There are fewer than 20 plants nationwide that can manufacture a high volume of units. Should something go wrong with a modular construction contract, a buyer may find themselves facing limited alternatives. Moreover, prefabrication involves a front-loaded design process – more design and engineering are completed upfront and require architects, engineers and contractors to be familiar with modular fabrication. This country currently has a limited number of experienced design/construction teams in modular construction.

Financing and cash flow: Many lenders are unfamiliar with modular construction projects, which can make it difficult to secure financing. For a traditional construction project, a lender provides capital in a series of tranches as the project progresses and the onsite building becomes increasingly valuable as collateral. By contrast, for a modular project, much of the total capital is required up front; the lender has only an empty lot as collateral. Thus lenders will frequently require additional security, guarantees and insurance. For developers, cash flow during a modular construction project is also significantly different from standard construction. Manufacturers typically require deposits prior to final design and again prior to manufacture.

Proximity of suppliers and transportation logistics: The geographic proximity of the manufacturing facility is critical for any modular construction project. Transporting large modules long distances can offset the cost savings achieved by labour efficiency gains. As well, there are transportation risks. A mishap during transport could lead to a need for repair or replacement and unexpected project delays.

Compressed timing and project planning coordination: To achieve the time and cost-saving advantages of factory‐built modules, extensive pre‐project planning, early engineering design completion and close project management are critical to ensure each stage of a project is completed in a timely, coordinated fashion. Factory fabrication also requires the design and engineering of the units to be finalised early in the manufacturing process. This requires committing early to final design and limits the flexibility of later design changes. Since onsite assembly and installation is accelerated, the timing of components and contractors must also be carefully coordinated.

Moving forward while mitigating risk

Governments, institutions, investors, manufacturers, developers, builders, architects and consumers can all benefit from the expanding advantages of modular construction. And all can play a role in eliminating barriers to reaping these benefits. To realise rewards while mitigating risks, consider the following.

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Build awareness of the benefits

There remains some general lack of awareness about the benefits of modular building. All of the stakeholders involved should take a more active role in informing policymakers, investors, buyers and consumers about the ways the industry is evolving and the potential gains for all.

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Educate lenders and insurers

Manufacturers and developers need to educate lenders and insurers about the characteristics of modular construction today. Finance and insurance providers can perceive loans and insurance policies for prefabricated projects to be riskier because they are developed offsite. Fabricators and developers need to continue working with these stakeholders to put in place consistent solutions across the country. A clear and consistent risk framework will help to secure more affordable financing and insurance options for these projects.

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Collaborate to build scale

Manufacturers, designers, architects, owners, developers, investors and governments need to foster productive relationships to bolster a reliable modular construction pipeline. By example, the Victorian School Building Authority created the “Permanent Modular School Buildings Program” as a modern and efficient solution for delivering quality buildings in a short timeframe and by the end of 2020 delivered 101 modular school buildings across Victoria.

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Make capital investments in capacity and innovation

Investors, manufacturers and suppliers need to strike alliances and make greater capital investments in the modular construction industry to advance capacity and innovation. A step in the right direction is building 4.0 CRC, which is an industry-led research initiative co-funded by the Australian Government. The CRC aims to develop an internationally competitive, dynamic and thriving Australian advanced manufacturing sector, which will help manufacturers design innovative prefabricated buildings that are more eco-friendly and affordable and can achieve quicker turnarounds.

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Establish supportive legislation and policies

Governments should enact legislation and policies that encourage the growth and development of the modular construction sector. By example, Sweden is widely regarded as a global exemplar of offsite construction with 80% of the countries overall housing market being made up of panelised single dwelling residences. In 1965, the Swedish Government initiated a 10-year ‘Million Homes’ plan, aided by factory-built housing to address a looming housing crisis and mitigate challenging climate conditions.

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Develop new business models

To be sustainable, companies involved in modular construction should consider alternatives to traditional business models. Developers need to devise a sustainable model that considers the size and depth of potential markets and the availability and capacity of suppliers. And manufacturers need to develop business models that maximise efficiencies and quality.

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