Is offsite the answer?

The construction industry is heading for the buffers. Capacity is draining out as skilled tradesmen retire and few enter as apprentices. The go-to supply of EU migrant tradesmen is likely to be restricted soon and is already less interested as the pound falls. Construction quality is poor in the housebuilding world. Mark Farmer’s message: Modernise or Die, which I quoted in my last newsletter, is clear that a major move to offsite construction is needed to keep the industry from decline.

The proponents of offsite construction see it as meeting several needs simultaneously. Firstly, industrialised fabrication raises capacity by enabling machines to join the workforce and less-skilled people to work with them. Secondly, the factories provide steady work in fixed locations, with social hours and better health and safety. This will enable employers to attract a wider and more diverse workforce who would not consider sitework. Thirdly, the offsite-fabricated elements are made to a higher quality than the site-fabricated equivalent, given the better working conditions and the contribution of automation in the factory. Productivity, the great weakness of construction, is improved by all of this. Costs should fall as productivity rises. Fourthly, machine-assisted construction must be done in a digital working environment, providing work of the type attractive to millennials.

Already a rising percentage of any building is being fabricated offsite. Construction products (other than raw materials) make up an increasing part of specifications. Buildings are ‘ecosystems’ of several layers of elements: substructure, super-structure, skin, systems, fit-out and furnishing and equipment. Most of the latter elements are fabricated offsite now. Mechanical and electrical systems are being assembled into large riser and distribution modules offsite. Bathrooms and kitchens come as pods. Envelopes are delivered as unitised panels, sometimes several storeys tall. Steel frames are all factory made and pre-casting is increasing for concrete elements. Fully fitted modules of accommodation such as hotel and student rooms and apartments are routinely ordered now, whilst Cross Laminated Timber (CLT) is becoming the new concrete: able to provide complete structures or modules made accurately and quickly offsite.

So, is the Offsite construction future a self-fulfilling prophesy? Will it become the norm without any further effort? The evidence so far suggests not. Specialist firms making offsite elements are proving just as prone to business failure as on-site builders. Costs are usually higher because of the capital required and the sporadic flow of orders, causing traditional methods to undercut offsite. Supply chains remain fragmented. On-site assembly of parts is fraught with risk of damage.

Construction has been a low-capital intensity business, making entry easy and survival dependent on cash flow. Overcapacity keeps margins low. Small, privately-held firms can prosper in the low-margin environment because the return on their modest capital is good. However, innovation and training are both costly and are driven out by the low margins. Subcontracting, to give flexibility during the inevitable and exaggerated business cycles which construction suffers, further depresses the capacity to train or to do research and development. Recessions strip the industry of future talent and make the trades poor lifetime investments. Offsite raises the ante, needing more capital and a steady flow of orders, abhorring downturns.

Toyota’s housebuilding operation in Japan is often pointed to as a model. It could not be more different than UK businesses. Toyota specialises in replacing aging homes on existing plots. Homeowners, often with 100-year mortgages passed down the family, replace the actual building at intervals. The site holds most of the mortgaged value. They have a customised design made within Toyota’s options, are moved into a hotel for a week and return to a new home with the latest specification. Toyota manages the sales process to keep the production lines flowing at optimum pace. The supply chain is a long-term one with capacity to keep innovating.

UK construction will need to become much more integrated to prosper in an offsite world. Production flow stability must be a high priority, with demand managed to achieve it. The myriad of competing methods on offer needs to be weeded down to some strong, insurable options. Site assembly needs to be considered at the offsite stage. Digitally enabled design for manufacture and assembly, known as DfMA, needs to become normal in professional offices, so that the decision to build offsite is made at the start, with contractor involvement, and not after a conventionally designed building has got planning permission.

The best hope of progress may lie in the emerging market for institutionally funded ‘Build to Rent’ homes, now finally endorsed by the Housing White Paper. One institution, Legal and General, is investing in its own factories. Others are considering buying from existing or planned factory capacity. This sector is far less likely to suffer recessions and it values the speed of build and the lifetime quality which can be achieved offsite. Higher density development, which carries the construction costs better, will form the backbone for the sector.

Several contractual issues arise in building offsite, as considerable value is created before it arrives onsite. What happens if the supplier fails before delivering? Lawyers are already writing about such issues. JCT will adapt to provide solutions.

Blog author: Richard Saxon CBE, JCT Chairman