Blog Author: Peter Hibberd
Views on MMC range from its adoption being the only proper solution for meeting building needs, to its being old hat, and only able to produce aesthetic mediocrity. Neither view is true; nor is it true that standard construction contracts per se are a barrier to adopting MMC.
Our understanding of MMC is often confused, despite the MHCLG Joint Industry Working Group’s 2019 publication ‘Modern Methods of Construction’, which introduces its MMC definition framework. A definition that comprises seven categories and spans all types of pre-manufacturing, site-based materials, and processes, but restricts itself to housebuilding. MMC is about the rationalisation of production through the industrialisation of product manufacture, primarily, the offsite design and manufacture of construction components, but also onsite processes of building and assembly. It is not just concerned with a fully prefabricated design, and hence, it has relevance to all construction sectors.
Pre-manufacturing means ready-made at a place separate from its final position i.e., offsite. There is nothing novel about pre-manufacturing because in one form or another, it has been a part of the construction industry’s procurement processes and contractual arrangements for a long time. The main question is to what extent offsite manufacture should take place. The object being to improve productivity.
Pre-manufacturing offers potential benefits, such as consistent quality, efficiency savings, and economies of scale but is it appropriate, or economic, for the construction work under consideration. The magnitude of pre-manufacturing is dependent upon the construction sector e.g., housing, industrial. That is because simplicity of assembly and aesthetics, and opportunities of scale are important determining factors. The uptake of pre-manufacturing is also dependent upon satisfactory solutions to factors such as, copyright of design, transfer of ownership of assembled parts, and overcoming simple prejudice. Most barriers are overcome if there is sufficient justification, but Legal & General’s recent announcement of the closure of its factory for modular house construction, after just seven years, is indicative of the potential hazards.
Like pre-manufacturing, the other MMC defined categories of ‘Traditional building product led site labour reduction / productivity improvements’ and ‘Site process led site labour reduction / productivity / assurance improvements’ have something to offer. Each of the seven categories impacts upon design and production of the building, which affects the nature of procurement and may have consequences for contractual arrangements.
Certain commentators believe that standard construction contracts are not suitable for MMC and see them as a barrier. This is not so, because the MMC definition covers a wide range of activities. At one extreme, where the manufacture of a whole building structure takes place offsite, there may be a need for any contractual arrangement to take account of matters that standard form contracts may not ordinarily include. However, throughout the remainder of the spectrum i.e., the other six defined categories, there is much that still accords with well drafted standard form construction contracts, such as those prepared by the JCT.
Because MMC is concerned with offsite manufacturing, any contract should ideally deal with the risks of payment and transfer of the ownership of those items. MMC is about the method of incorporation of offsite manufactured components and systems into the whole construction works, not just the purchase of whole units, as may be appropriate for certain forms of housing. Contracts, such as, JCT Construction Management, with its Trade Contracts, and JCT Management Contract, with its Works Contracts and especially the respective Designed Portion, together with express provisions for payment for offsite materials and the use of offsite bonds make these contracts suitable for such work. These contracts specifically provide for ‘Listed Items’, which expressly refer to ‘pre-fabricated items for inclusion in the works’. That provision includes important conditions governing payment of those offsite items, and which can deal with any matter of prefabrication.
The JCT Design and Build Contract also readily facilitates such work. This contract, like the Construction Management Trade Contract also provides for stage payments, advance payment, and an advance payment bond, of relevance to the manufacture of larger scale offsite components. There are also Contractor and Sub-Contractor Warranties to support these contracts. The use of such warranties is a matter of judgement, but they are particularly desirable in respect of the larger prefabricated components, where risk of failure has greater impact.
As the greatest benefit of embracing MMC flows from volume production it is appropriate to consider the use of the JCT Framework Agreement in conjunction with an underlying building contract. There is also a JCT Pre-Construction Services Agreement designed for use on substantial and complex projects and is particularly relevant where there is significant prefabrication. The value of a such agreements is that they enable a relationship where design creation through collaborative working can provide the appropriate emphasis on product development and importantly provide for risk assessment and allocation.
Clearly most work adopting MMC can use certain standard forms of contract, either as drafted or with limited amendment. Far better to use such forms of contract rather than produce a bespoke contract in the mistaken belief that one must.