The market for off-site manufacture is expanding rapidly, boosted as it is by public sector investment programmes. Davis Langdon looks at the cost benefits, barriers to innovation and procurement issues involved in OSM
Demand for off-site manufacturing
Off-site manufacture (OSM) has experienced a bumpy couple of years. Although the use of pre-assembled components has increased in many sectors of the industry, including curtain walling and building services, there have been disappointments on high-profile projects that made extensive use of prefabrication, such as the Peabody Trust’s Raines Dairy, which suffered cost and time overruns. Then there was the demise of the Amphion consortium, set up to build prefabricated social housing. However, the pace of development in OSM is increasing, with existing players adding capacity and new players entering the market, including Laing O’Rourke and Corus. With increased capacity comes the promise of reduced costs from productive and purchasing economies. In the curtain walling industry for example, large-scale investment by European manufacturers has for the first time brought the cost of unitised curtain walling with the budget of medium-quality commercial and residential schemes.
Wider market forces are also at play, which will further increase the capacity of the industry and its economies of scale. The government has boosted demand through investment in affordable and key worker housing, schools, and the health service. A good example is the Ministry of Defence’s £2bn single living accommodation programme, which will provide a dependable workload for years to come.
However, in the private house building industry, the premium construction costs of OSM are difficult to justify in a market focused on location and price rather than quality and lifetime performance.
Markets for OSM and the main technologies
The principal market for OSM is for components and assemblies rather than whole buildings. Specification of preassembled pipework, prefinished windows and doorsets, modular lighting and other systems has made a significant contribution to increasing the quality and performance standards of buildings with little impact on out-turn cost.
Sectors where there is significant demand for more highly integrated OSM include the institutional markets – accommodation for students and military personnel and care homes. Affordable and key worker housing are also important markets, as a high proportion of output will be high-density flats. The Housing Corporation and English Partnerships are doing their bit to encourage innovation by requiring that 25% of funded units be constructed using “modern methods of construction”. In addition to prefabricated components and assembles such as wiring looms or unitised curtain wall, the main options available in the UK are as follows:
- Volumetric These units are 3D modules assembled in a factory. The term “modular” is used to describe load-bearing units. The main market for volumetric is for closed modules, either bathroom pods or single room units suitable for hotels and so on. Open-sided modules provide allow the construction of deeper plan buildings but offer fewer opportunities for standardisation. The greatest benefits from volumetric production are derived from making highly serviced areas in factory conditions. With bathroom pods, for example, more than 30 trade activities are transferred off-site, leading to fewer people on site, easier commissioning and less rework. The cost premium depends on volume and complexity. For specialist applications based on a limited production run the premium can exceed 15%. With better utilisation of factories through larger volumes, or for buildings with a high value fitout, the premium can drop to around 5%.
- Panellised These systems involve the on-site assembly of flat panel walls, and cassette floors and roofs. Systems range in complexity from simple timber or light steel frames (open), to more complex factory finished units incorporating insulation, lining, doors, windows and services distribution (closed panels). However the proportion of value in OSM on an open-panel system can be as low as 20%. Recent innovations include structural insulated panel systems (SIPS), where the rigid insulation core is bonded to sheet linings to form the panel.
The main market for panellised systems is residential construction, where in England and Wales, timber frame has a 5% share, much lower than in Scotland and other European countries. Timber panels typically add a capital cost premium of up to 5% that can be recouped via savings from reduced defects and rework in a well-managed site. Steel framed panels are currently more expensive. The advantages of panelised construction are speed of construction, the reduced impact of weather on the programme, and flexibility in terms of layout and room size. CAD/CAM integration in the production of systems including Space 4, Pace and Fusion has enabled a degree of mass customisation to be achieved at relatively low volumes – giving housebuilders the flexibility they need to meet client demands.
- Hybrid Hybrid systems use a best of both worlds approach by combining the benefits of modules for highly serviced areas and the flexibility associated with panellised construction for other spaces. Although volumetric bathroom pods are increasingly common in otherwise conventional construction, the full hybrid solution is relatively rare. In addition to housing, areas where the hybrid approach could be applied include the schools renewal programme and other urgent public investment programmes.
In the current marketplace, with healthy demand from established markets such as hotels, student accommodation and the MOD, the modular sector is working at close to capacity, and new investment will shortly add several thousand units/pa to capacity. As the rate of growth in the panellised sector has not been so rapid, there is more capacity, but with the introduction of a 25% modern methods quota for homes funded under the Housing Corporation’s Approved Development Programme, demand for panelled systems is likely to increase as it is the simplest option for Housing Associations to implement.
The financial case for OSM
Capital cost premiums associated with off-site manufacture create a barrier to adoption, particularly in instances where the developer holds no long-term interest in the building. To date, the major growth areas in OSM have all been revenue or life-cycle cost driven, where early revenue streams can justify the OSM premium. A combination of accelerated handover and reduced lifetime repair and maintenance costs has also been used to support the case for investment by public bodies such as RSLs.
Drivers that, over time, will influence the cost equation for off-site manufacture include:
- Volume and a steady flow of work are the keys to reducing unit costs associated with design, product development and factory overheads. For example, in the current market, minimum production runs for modular units are in the order of 30-40 units, and significant economies of scale require orders of 100-150+ units.
- Low cost manufacture An alternative approach to reducing unit cost is to locate factories in low-wage locations. The BUMA system, manufactured in Poland, has delivered a high quality modular product aimed at key workers for £1300/m2, a marginal premium over typical apartment costs in London.
- Cutting downstream costs OSM should reduce preliminaries costs related to project duration, supervision requirements and the costs of rework. Construction is commonly criticised for not taking all of these savings into account when appraising OSM, but the project must be set up properly to fully exploit these opportunities.
- Standardisation vs flexibility Use of standard layouts and panels is fundamental to the achievement of economies of scale but can conflict with demand, particularly in housing, for a customised product. But advances in CAD/CAM are making “economy of scope” possible, through an extended inventory of standard units or through the automated fabrication of bespoke panels. The use of standard components and pre-cut materials also allows the rationalisation of the supply chain and helps increase quality.
- Industry-wide cost trends Despite short-term fluctuations in material costs, the main contributor to construction inflation is labour. As factory-based work can achieve three times the productivity of site labour, the effect of future wage rises on the costs of OSM will be mitigated. With the wages for general trades rising by 7% in 2004, greater productivity will, over time, make a significant contribution to narrowing the cost gap.
Benefits of off-site manufacturing
The potential benefits of off-site manufacture are considerable. Much of this benefit and added value is indirect, and the initial investor may not be a beneficiary. While the cost issue remains unresolved, supporters of OSM argue a broader case based on social and environmental issues. In summary, the key benefits of OSM are:
- Certainty of programme and quality, through simplification of site operations, reduced dependence on weather and the reduction of defects, based on controlled factory-based assembly processes.
- Programme Opportunities to compress project durations and reduce risk by transferring work off site and by simplifying site operations and on-site snagging. The downside of programme compression is that more work needs to be completed pre-contract and earlier design freeze dates are required.
- Quality Quality is derived from standardised processes, factory conditions and off-site pre-testing. Areas where OSM has the advantage include thermal performance and air infiltration, where regulations are becoming more demanding. One of the benefits of the factory process is that improvements developed on one project can progressively improve the basic product.
- Whole life cost Enhanced specification standards and build quality can also reduce occupancy costs related to energy use, defects and repairs. However, the benefits of good whole life performance can be offset by high costs of adaptation or the risk of redundancy if buildings cannot accommodate change of use or modification.
- Sustainability Gains relate to product performance, waste reduction and the reduced impact of construction activities on site such as noise, minimal ground disturbance, and vehicle movements.
- Safety, working conditions and recruitment. Transferring work off site into a controlled environment improves safety and can potentially attract a new workforce.
Barriers to the adoption of off-site manufacturing
Although the use of pre-assembled components has increased in most sectors of the industry, the take-up of more integrated OSM systems has been more uneven. With growth anticipated in both housing and public sector construction, OSM is expected to play an important role in providing additional capacity.
In considering the adoption of OSM systems, a number of barriers to entry need to be addressed by the client and project team:
- Commitment to volume and continuity of workload Use of small test sites by clients to reduce innovation risk increases the likelihood that an OSM pilot project will not deliver the expected benefits, and will not be implemented on a wider basis.
- Need for project specific research There are more than 40 different suppliers of panellised and volumetric systems in the UK with no standard means of comparison or historic cost data. Market testing is a time-consuming process. Greater availability of information, confirming the competitive position of alternative technologies, would enable clients to proceed without having to undertake their own comparative studies.
- Planning Decisions by planners can act as a constraint by influencing the layout and appearance of buildings, by extending the pre-construction period or by introducing fluctuations in the demand for units.
- Confidence in the product and process While system certification is addressing concerns of insurers and funds, product life and whole life performance continue to be major concerns.
- Development of new skill sets Clients and project teams need to understand the properties and constraints of the selected system and the revised project process. The whole project team also needs the ability to collaborate effectively.
Interfaces with conventional construction including:
- Tolerances, co-ordination and reduced dimensional flexibility associated with OSM
- Inflexibility, resulting from the early design freeze and the need for carefully sequenced off and on-site activity
- Contractual interfaces between specialists, general contractors and the project team
- Co-ordination of production and delivery lead times and logistics for OSM components.
Procurement of OSM
Successful procurement of OSM depends upon the integration of the design team, specialists and main contractor to secure the optimum benefits from the technology. It is also concerned with early appointment of the team to secure technical input at the critical stages of a project.
Early appointment of specialists is particularly important for volumetric, hybrid and closed panel systems where there is a high degree of system integration. The key concerns at appointment are:
- Allocation of design responsibility
- Responsibility for the management of site works
- Potential and capability for collaborative working
- Early confirmation of the suitability of the proprietary OSM solution.
- Confirmation of available manufacturing capacity to meet the programme
Early completion and high quality work are primary benefits of the OSM approach, which can only be achieved using a disciplined programme that addresses the production line characteristics of OSM and the sequences of design and on-site work. Major considerations in setting the programme include:
- Setting and enforcement of design freeze dates
- Programming of appropriate lead-in times for manufacture
- Sequencing of on-site works
- Development for contingency plans to deal with logistical problems including delayed site works or problems with the delivery of OSM products to site
Management of the works
On projects involving a high degree of pre-assembly, the role of experienced site management staff becomes more important and it may be in the interests of the client for the specialist to take greater responsibility for overall delivery.
However, most specialists do not have the capability or the interest in taking on the full responsibility and financial risk associated with the management of the project, while many general contractors do not have the skills or resources to manage an OSM project to achieve the best outcomes. Procurement
options available to address management responsibility range from the appointment of specialist subcontracts under a lump sum contract to the use of construction management where the responsibility of individual trade contractors can be clearly set out.
Case study one: Prefabrication of building services
This case study summarises a number of options for off-site manufacture in building services, illustrating how cost effectiveness can be obtained from the use of small-scale pre-fabricated assemblies. Bespoke volumetric plant rooms and other one-off applications of OSM can also be used to secure broader project benefits including programme gains, effective use of roof space and accelerated testing and commissioning.
Packaged plant room
Packaged plant room for a 6000 m2 commercial development comprising chiller enclosures, lift motor rooms, boilers and air handling plant. The volumetric approach involves a 7.5 % cost premium, including craneage to place the roof-level models. The cost also includes the fabrication of the modular enclosures which add £24,000 to the OSM option. Savings in pipework installation costs related to simplified installation work and less wastage offset this additional cost.
Multi-service modules are a good example of component and assembly OSM, involving a high degree of added value. Prefabrication of on-floor services distribution reduces requirements for on-site labour and testing and commissioning and involves sufficient repetition to create an economy of scale. The case study has multi-service units servicing a fan coil unit including hot and cold water, supply air ductwork and a busbar connection. The units require minimal specialist tooling and could be produced off site or in a field factory. The conventional installation involves the work of multiple trades, together with cutting and jointing on site.
Case study two: Modular building
The scheme is an 800 m2 modular operating theatre and recovery ward, delivered under the Procure21 programme. The project forms part of a larger development including general wards and office accommodation. The modular option was considered for the following reasons:
- Site constraints including immediate adjacency to functioning operating theatres
- Avoidance of disruption to hospital operations
- A tight programme with fixed completion date to coincide with opening of wards
- High degree of technical content in the modules
- Ability to accommodate extended lead-in period due to requirements for extensive enabling works
- Quality and whole life performance priorities.
Two modular proposals were compared with a conventional solution at scheme design stage. The cost of one modular system was lower than the conventional option, but it was ruled out on the basis of quality concerns. The specialist subcontract was let to a European-based specialist medical system manufacturer, which produced a flexible solution and could guarantee the modules for a 60-year design life. The modules were delivered with partitions and primary services installed. Overcladding, second fix services installation and fit-out works were completed on site.
Lead-in time from the freezing of scheme design was four months. The site operations, including enabling works, were completed on programme within eight months. An equivalent, conventional project would take between 10 and 12 months on site.
Case study three: Unitised curtain walling
Prefabricated, “unitised” curtain walling, produced by specialist European contractors has been used on large commercial office buildings for the past 20 years. Recently these contractors have moved into a wider range of markets in the UK, including commercial residential and PFI hospitals, partly as a response to cyclical office development markets, and also as a consequence of consolidation in the industry and resulting investment in automated plant and additional productive capacity.
Unitised curtain wall comprises workshop-assembled frames pre-fitted with insulated glass units, solid spandrel panels and so on. On site, installation is carried out by slotting the unitised elements directly into pre-installed brackets. This operation takes place direct from the floor slab without the necessity for external scaffold or wall climbers.
Compared with site-assembled ‘stick’ curtain walling, unitised systems are designed on a project-by-project basis, with customised extrusions to meet design and performance criteria. As a result, lead times of up to nine months may be required.
By contrast, stick systems comprise a range of ‘standard box size’ mullions and transoms, which means that lead times can be reduced, typically to two or three months, but that aluminium content will not be optimised for design loads and so on. The lead-in time for unitised systems can however be reduced by the used of previously designed extrusions.
On a four-storey out of town office development, a typical basic stick system, excluding solar shading etc, will cost about £300/m² of wall area overall. External access will add a further £30/m² to these costs. A comparable unitised system alternative, will cost in the region of £375/m².
In summary, if the programme can accommodate the lead-in time required, the advantages of a unitised system are as follows:
- No external access required
- Single installation operation of unitised elements pre-fitted with glass units and panels. Stick systems involve multiple operations on site
- Floor by floor installation, enabling faster access and greater flexibility for following trades.
- Factory assembled solutions with greater certainty over quality
- Better acoustic performance compared to stick system due to split mullion and transom design
- Ability to accommodate greater live load deflection of structure.