Love 'v' Hate:UK Off-Site Construction

Who holds the cards, or wears the trousers? The client or the Off-Site Manufacturer?

Love it or hate it OSM is here to stay. The UK has a shortfall of millions of homes, including 3.1m affordable, and despite investment, some may argue 'minor' (coupled with recent changes allowing LA's to leverage their equity) from the government, we are a long way off from building 150,000 homes per year.

The UK's OSM industry can build 25,000 homes within predominantly a 'cottage industry' that has limited production capacity currently.

It's all about collaborative working

Whilst traditional construction still has its' place OSM is very slowly being adopted in the UK where elsewhere it is second nature including Scandinavia, Baltics, Germany, Turkey, Japan & America. We, ACE Modular Construction as proud of our country and welcome UK OSM's, we hope to see them grow successfully but there comes a point when we have to move with the times, stop living in our past and adopt collaborative working to achieve huge results required in housing. Who needs who more, the OSM or the client? Well we all have our own opinions!

If you were to believe every story in the construction and national press (see my last blog on UK's empty promises) you could be forgiven for thinking we were perhaps almost closer to being equal to our cousins overseas but we all know despite much 'bravado' from a handful of firms (some yet to even build a house let alone complete a fully automated 'smart' system) radical changes need to come including property development finance lenders opinions and delivery. But let's focus on solutions.

Our finance partner Chris Davidson reported last Friday;

"As the interest in Modular, or Offsite Housing gathers pace, the all important area of finance continues to be a critical focal point. Most projects are funded with private equity currently, due to the upfront payment nature of the build. Debt funding is only just beginning to emerge. In order for developers to access debt funding, lenders wants to see significant payment protection from suppliers, which include Performance Bonds, Letters of Credit or Company Guarantees. It is therefore critical that you consider and analyse lender friendly suppliers if you wish to access debt funding.

A shortcut......We've begun speaking to a number of suppliers about this very area, both in the UK and abroad, to be see if they can be approved by lenders, and therefore considered viably by developers who are embarking on UK modular housing projects."

It's all about collaboration utilising overseas support and whilst us Brits are proud world leaders in sectors including finance (the City), film production, CGI, fashion we have a dissipating construction force and a severe lack of skill set, rising labour and material costs. Our friend Pete Craig is doing his very best to provide a fast track OSM training programe for UK developers which is pioneering and welcomed in the sector.

With lenders seeing the light of late and OSM's being slightly more flexible with payment terms we are working towards a solution, albeit slowly. Over 25 mortgage firms are now lending on OSM with BOPAS or similar accreditation. To bolster efforts Homes England could be key conduit here as another good friend Bobby Barr points out "to assist offsite modular construction manufacturers, help with up front deposits is needed to create a secure pipeline for their technologies, they are already controlling land and suitable contractors as delivery partners. They could do the same with offsite construction technologies."

"Collaboration has no hierarchy. The Sun collaborates with soil to bring flowers on the earth." - Dr.Amit Ray

LOVERS

• Serious about adopting modern methods of construction. Have used one form or another OSM method including panels (light gauge steel, wood, or light weight concrete), 3D volumetric & bathroom pods (steel frame or GRP). Pioneers include Tom Bloxham of Urban Splash have a development pipeline of ￡1Billion ahead of them which will see them create more than 3,000 homes and 230,000 square foot of workspace from 2019 onwards.
• Who are investors, that understand it, lean towards OSM on the basis of the rate of return (IRR) combined with delivery & high quality assurance in a controlled factory environment.
• Welcome the benefits including quality of finish, consistency, fix build costs, simultaneous progress creating predictable project timelines. Appreciate the risks attached as with any construction project - sub-contractors go out of business regularly. Ensure strict due diligence in place from day one working with supply chain.
• Collaborate with UK delivery partners that have considerable experience in OSM and appreciate that OSM's are partners to be treated with respect and may hold the cards to the future of solving the UK Housing Crisis.

HATERS

• Experts in construction but risk adverse, little or bad experience of using OSM, lack of strong relationships in place & accessibility with manufacturers worldwide. Some main contractors say in the press they wish to adopt proven methods of modern construction but in reality may bow down to their clients requirements de-risking what are are considered as serious potential dangers associated with guarantees, delivery and quality. Key issues for them include fear of change, sourcing critical components from overseas and potential problems associated, development lending terms (see above) and 'what if's'.
• Legitimate reasons in some cases on the basis that OSM is not suited to every construction project for obvious reasons however are perhaps either not aware of latest technology or have not fully trialled/tested (due to time constraints or permitted acceptability at their firm for the adoption of modern methods) or do not have confidence to present to clients or deliver a full or even hybrid modular build program. Construction is riddled with risk and to operate with such low margins main & sub-contractors are under intense pressure to deliver wishing to avoid as much risk as possible naturally.