For decades developers and builders have been trying to improve the performance of the construction industry – cut waste, improve efficiency and safety – like the manufacturing sector has been able to. Rethinking Construction – Sir John Egan’s Report of 1998, made all the now-familiar points.

The more recent Farmer Report with the threatening sub-title of Modernise or Die, commissioned by Government from industry veteran Mark Farmer in 2016, stated R&D in construction was almost non-existent, productivity low and cost inflation high. He noted the severe skills shortage, now exacerbated by Brexit, and made 10 recommendations, which – as usual – included making use of more off-site construction techniques.
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In those 20 years has anything really changed? Both Egan and Farmer urged the industry to be more aligned in terms of its interests and objectives.

Here in the developer’s command and control bunker at First Base, we find ourselves wondering whether we have effectively communicated the client’s key drivers, or indeed whether the supply chain is listening. Off-site manufacture may offer a wide range of significant advantages, but these can only be realised if they work for the developer and benefit the financial equation of each singular development.

The client’s view of off-site methods is highly nuanced by the type of product being delivered, for example, whether it is an apartment for sale, student accommodation, a hotel, workspace, or build to rent apartments.

Our basic broad objectives remain the same: cut cost, same or improved quality, shorter programme, max’ the value – which means optimising net to gross floorspace – and we are very concerned about cashflow and investment risk. By which I mean the covenant strength of the supply chain is crucial. Will we get what we are paying for (with other people’s money and to whom we are answerable!) when we need it?

Can we persuade the investment market, which is extremely risk averse, to put ‘eggs in one basket’ with a bespoke, patented off-site solution. If we can’t fund it, we can’t build it. Which is why off-site solutions – using a complex, customised, or innovative construction method – often need a ‘balance-sheet wrap’ to persuade our funding partner to lend against the project.

We usually have to persuade an intermediary partner with a large balance sheet to guarantee the outcome of a project should the off-site supplier go bust. This is a big issue for developers – to manage the perceived risk in working with an immature supply chain. Things are changing rapidly, as April’s announcement of Goldman Sachs’ £75m investment in off-site manufacturer Top Hat demonstrates, so hopefully this is an issue that will recede as the supply chain matures.

Cutting construction time for the developer, creating a future annuity stream from, say, a student housing scheme, will bring major benefits, which is why we’ve seen student resi’ providers and build-to-rent operators the main adopters of off-site, volumetric construction.

For the build-to-sell gang, the business case for volumetric or pre-fab is more complex. They can only sell so many homes a month, so why build too many more than you can sell in any one month? This slow-drip requirement for product on-site does not work with the rapid, consistent production line efficiencies of off-site solutions.

Homes are also likely to be less efficient in gross to net terms (doubled up walls and floors) which hits sales values because saleable space is reduced compared to traditional builds.  Other than savings in prelim costs, there is no real upside in value for the developer. It might also be argued there is further wastage in over-engineered structure for the off-site units.

But we all want to simplify and de-risk construction. The more we use off-site methods the better, because it does make things quicker, more efficient in many ways, safer, and most importantly, more predictable.

What we want, what Farmer wanted, is building sites that become more like final assembly plants, rather than a temporary workshop for a highly-skilled labour force. The skilled labour force can deliver their skills in a controlled, warm, dry factory where wastage and quality control, of the whole production and supply line, can be monitored closely. In fact, it seems clear that a fully functional off-site factory and/or logistics facility might need less highly skilled labour because the need for these trades has been designed out and there may be jobs for a wider range of employees as a result, who need less training.

A friend of mine has a manufacturing business. Amongst other things, he makes golf trolleys. He knew nothing about construction, but recently started to explore opportunities in construction. The biggest lesson he learnt, he tells me, was on a site he visited where he was astonished by the complexity of the process and the amount of wastage – ‘that’s money you’re throwing in the bin’ he told the developer.

He subsequently got involved with a major housebuilder/developer which is investing heavily in offsite manufacturing. They get it and have started to streamline their construction process by pre-manufacturing kitchen and bathroom walls with pre-installed fixings. These have dramatically improved the time it takes to install key elements on site.

The point is that he understands manufacturing, which is all about efficiency, and the industry needs to collaborate more with the manufacturing sector so that the principle can be properly replicated in construction.

His lesson is that manufacturing businesses are much better set up to manage efficiency, marshal and use materials pre-cut to the right length, products that are designed to suit the most efficient metrics and which balance material costs and labour costs.

What developers want, what we at First Base are interested in, is being able to develop buildings using a kit of parts where complex elements are assembled in factories, that can still be delivered efficiently to site – while avoiding the need to ship ‘boxes of air’, which is an issue for volumetric pre-fabrication because of the expense of road transport – and then put the kit together efficiently on site.

To manage our risk, we need to explain these issues, and others, to the off-site manufacturing industry. We are your ‘route to market’. You are our best bet for being more successful at what we do in the future.
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