MODERNISE OR DIE… BUT HOW?

Author of the October 2016 UK Government Review of the Construction Labour Market Model entitled ‘Modernise or Die’, also widely known as ‘The Farmer Review’, Mark Farmer has 28 years of experience in the construction and real estate sectors, and now runs a consultancy specialising in innovative delivery models. As such he is eminently qualified to analyse the state of the offsite industry, primarily in the UK but also beyond. Speaking to Built Offsite in the lead-up to the 2017 prefabAUS conference, Farmer paints a compelling picture of the challenges ahead.

He describes the existent construction industry as one in which “the accepted delivery model is underpinned by competitive tendering of largely bespoke designs to contractors, using ad hoc supply chains that in turn are deploying antiquated and labour-intensive construction techniques.”

“Low levels of capitalisation in the supply chain, risks of economic cyclicality and an increased structural reliance on a casual, and migrant dependent labour force have all conspired to mean that new ways of working, including increased adoption of prefabrication, are viewed with suspicion, not just by the industry itself, but by clients and their advisors. This is something that has been a feature of the UK industry for many years, perhaps amplified by the legacy of technical problems left by previous post war ‘prefab’ initiatives that were not appropriately quality controlled.”

“Low levels of capitalisation in the supply chain, risks of economic cyclicality and an increased structural reliance on a casual, and migrant dependent labour force have all conspired to mean that new ways of working, including increased adoption of prefabrication, are viewed with suspicion, not just by the industry itself, but by clients and their advisors.”
Mark Farmer – Author – UK Government Review of the Construction Labour Market Model – ‘Modernise or Die.’

In the UK, recent developments are forcing change, he adds. “The UK now has the threat of Brexit to contend with, which has created a new burning platform for change, whereas Australia has perhaps a more free trade and labour policy, especially with the rest of Australasia. The US market also has strong similarities, with prefabrication being viewed as a marginalised part of construction, albeit it is clear that market disruption is starting to impact that market in pockets.  Fallout from President Trump’s anti-Hispanic migration stance is likely to hit the US construction industry disproportionately meaning that in a way the US has its own version of Brexit to contend with, which might accelerate change as it is in the UK.”

Given the entrenched nature of the traditional construction industry, expecting any emergent offsite sector to “pull itself up by its own bootstraps” is a tough proposition, he says. Instead, what’s needed is a proactive policy framework to foster a robust industry.

“I am not surprised by the current state of maturity of the Australian prefab market. It has struggled with many of the barriers to growth that the UK market has. There has not been any evidence of a concerted government- or policy- side push to promote modern construction as part of a wider industrial strategy so in the absence of some form of market intervention of government initiation or ‘market making’ support, the construction sector will always struggle to modernise itself from within.”

THE UK IN DETAIL
The Farmer Review outlined “deep-seated structural issues” affecting the UK’s offsite market, which, Farmer contends, has to contend with considerable structural “change inertia.”

“[The UK market] has a strong desire to be flexible, with low levels of fixed costs, low discretionary spend on R&D and innovation, low levels of direct employment, and a high degree of sub-contracting which has created a fragmented and adversarial delivery model.”

“A very ‘linear’ traditional procurement model that splits design from tendering from construction from end asset occupier needs also acts as a blocker to the increased integration needed for manufacture-led thinking being injected early into design development.”

“In addition influential client side advisors, including designers, project managers and QSs often know little about the products and technology now available. In some instances they feel threatened by promoting more integrated procurement models and ultimately are as a result loath to promote different approaches to
their clients.

On the other side of the coin, the offsite sector needs to get much better at promoting its benefits case back the other way and also to harness the combined economy of scale that could be released by improving inter business collaboration and the inter-operability of different systems or platforms.”

“I am not surprised by the current state of maturity of the Australian prefab market. It has struggled with many of the barriers to growth that the UK market has. There has not been any evidence of a concerted government- or policy- side push to promote modern construction as part of a wider industrial strategy so in the absence of some form of market intervention of government initiation or ‘market making’ support, the construction sector will always struggle to modernise itself from within.”
Mark Farmer – Author – UK Government Review of the Construction Labour Market Model – ‘Modernise or Die.’

On the subject of collaboration, Farmer says one key area in which industry can help itself is by developing and adhering to a common language that reduces the risk of clients and their advisors thinking that choosing one particular system holds them hostage to one particular business, especially in the event of an insolvency.

“This has been a funding problem in the UK. Inter-operability and component level standardisation can hopefully be promoted through such mechanisms as the Modular Construction Codes Board and its handbook which is being launched by prefabAUS / Monash University. I believe the launch of the Handbook on the Design of Modular Structures is a big step forward for the Australian prefab market. Anything that centrally unifies and drives conformity of approach as well as a general education about the offsite sector has to be a good thing. There are too many mistaken preconceived ideas that are in desperate need of correction through initiatives such as this.”

Meanwhile central and regional government intervention is vital, through public sector procurement or wider policy that actively looks to support the evolution of the prefab market as part of a construction capacity building initiative.

Overall Farmer says supportive government policy, promoting or incentivising innovation and R+D through fiscal measures or land and planning breaks might be the ‘carrot’ while a ‘stick’ of mandating certain commissioning behaviours can also be deployed.

“This has started in UK with a BIM level 2 mandate for certain public works and could progress to dictating minimum levels of pre-manufactured content on certain schemes, as Singapore currently does for its government land disposal programme. It is also critical that a move to offsite is accompanied with the confidence that it is a proxy for high quality and the consistency of that high standard. Ultimately, the funding market that finances developers / construction projects needs to buy into the long term investment or debt financing potential of the market.”

THE EUROPEAN PERSPECTIVE
SWEDEN: MIKAEL LUDVIGSSON – MANAGING DIRECTOR – SMART HUB
Given Sweden’s long and respected legacy in the offsite sector, Mikael Ludvigsson’s optimism regarding Australia is encouraging.

“It seems like anything and everything is possible in the Australian prefab market. This is the attitude we thrive on as an innovation cluster on the other side of the world.”

From his own country’s perspective, he notes that interest in offsite is burgeoning, driven by Sweden’s current housing shortage.

“Thanks to Sweden’s current housing shortage, companies originally founded to supply detached housing products, usually with a wooden frame construction, are now extending their product portfolio to include four to six storey high residential buildings.”

“Sustainability arguments are nowadays key drivers for the developers and property owners who also include Sweden’s municipalities. An increasing number of municipalities are formulating timber building strategies as a result of their ambition to form their new bio economy.”

“Sustainability arguments are nowadays key drivers for the developers and property owners who also include Sweden’s municipalities. An increasing number of municipalities are formulating timber building strategies as a result of their ambition to form their new bio economy.” Mikael Ludvigsson – Managing Director – Smart Hub.

The maturity of its offsite sector notwithstanding, Sweden faces challenges, he says.

“Many large Swedish construction companies are used to on site building methods and are not eager to adapt to offsite construction, while property owners also lack experience when ordering prefabricated housing. Cost issues can also restrict the possibility of creating more aesthetically appealing versions of prefab housing.”

Other local factors play into what’s possible. “For example in Sweden, the floor thickness of timber based structures is larger than for concrete based structures. The total building height is restricted which means that timber based prefab sometimes is forced to become one storey lower. This leads to lower long term profits for the property owner.”

A key solution for many of these issues is to foster increased cooperation between prefab companies and architects, he says. Technology can play a role, with digitised and seamless design and production tools leading to efficient production. “We are moving towards a future in which there is no gap between the designer or architect and production.”

Mindful that perception is powerful, especially when it comes to convincing potential end-users to embrace offsite, Ludvigsson also proposes an increased focus on aligning functionality with aesthetics.

“Municipal guidelines and funding could be used to increase the exterior design of prefab housing. One visionary goal could be to design and build prefab housing that is impossible to recognise as prefab in the visual sense.”

GERMANY: ALEXANDER NEUSS – CEO – SEMA GROUP
With more than 20 years of experience in the IT industry, especially in CAD/CAM and lean production, Alexander Neuss lends an international perspective to an assessment of Australia’s industry and sees room for growth.
“Although the Australian construction industry has identified the demand for offsite manufacturing to take the industry forward in the next 10 years it is something that still needs to be developed further. The requirement to make the construction process more efficient, less fragmented and to address skill shortages in the sector is a key driver in following the UK and North America to bring fundamental changes to the Australian construction industry as a whole.”

Neuss says the growth of offsite methodologies requires large capital investment and “a complete mind set change” from all areas of the build process.
Some of the barriers that stand in the way of the progress within this sector are:

Design: “The demand for a clearly defined design brief is fundamental to the process with a ‘design freeze’ scheduled into the project programme to enable the manufacturing process to commence. Designers have to change their mind-set as they are constructing the building and other trades within the manufacturing process are putting together what has been designed. Investment into specialist 3D design software that supplies information to every aspect of the manufacturing and build process is fundamental to a smooth work flow.”

Manufacturing: “Setting up an offsite manufacturing facility is a costly and time-consuming process. Capital investment is high with companies believing that the return on investment takes too long but in reality, once the manufacturing facility is up and running the return on the investment is no longer than that of any other machinery purchased and the value of the product is high with good margins.

Labour: traditionally most trades in the construction industry resist change and unions see these kinds of innovative large-scale changes as a threat to jobs and their control of the industry.

Cost: “Construction companies feel that the cost of prefab buildings is expensive and cost inhibiting without taking into account the cost saving on waste, scaffolding, build times and Health & Safety problems. Taking these factors and others into account this form of construction can be comparable to traditional methods of construction but with more benefits.”

Supply of materials: “Running the manufacturing process requires disciplined control of material deliveries which have to be geared up to a “just in time” attitude to avoid delays and a backlog in the manufacturing process. The strategic planning of deliveries also eradicates the need for large and costly stock having to be carried. This also reduces the need for large storage areas.”

Education: “This is something that needs to be addressed throughout the entire industry in universities and trade schools and in all areas. Also needed is a change in the attitude to the construction industry as well as contractors and end users.”

Given the global nature of the industry, it’s perhaps not surprising that Neuss recommends mining international expertise to answer many of these challenges. “Existing knowledge can be gained from other countries that have been through a similar journey and have overcome the obstacles currently being experienced in Australia. Experienced professionals from other countries could also be enticed to relocate and contribute to the growth of the industry as well as looking at knowledge transfer from other manufacturing industries in Australia.”

“Existing knowledge can be gained from other countries that have been through a similar journey and have overcome the obstacles currently being experienced in Australia. Experienced professionals from other countries could also be enticed to relocate and contribute to the growth of the industry as well as looking at knowledge transfer from other manufacturing industries in Australia.”
Alexander Neuss – CEO – SEMA Group

“Even if the Australian market in the prefab construction is still lagging behind in some details it is, however, on the right path. Several future-oriented Australian companies such as Impresa House in Melbourne have proved such positive development already now. Impresa House is one of the most innovative manufacturers of prefabricated houses in Australia. The company combines state-of-the-art European planning and manufacturing technology with innovative Australian building design skills to create world-class prefabricated houses for the future, today.”

BRINGING THE DEBATE HOME: AUSTRALIAN INSIGHTS
KRISTIN BROOKFIELD – CHIEF EXECUTIVE INDUSTRY POLICY – HOUSING INDUSTRY ASSOCIATION
In the Australian context, the pointier end of the debate about offsite uptake remains with end-users, says the HIA’s Kristin Brookfield. “In short, the industry is open to learning and trialling new methods, however they can be hampered by consumer choice, perceived building approval limitations, and perhaps cost and risk.”

“New homes need approval, generally both planning approval to check the location and design of the home and then building approval to check the structural stability of the home. Councils have design codes that can limit the look of new homes to those that we build now, meaning manufactured homes have to copy the look of homes built on-site. Once approved, building surveyors can become confused on what to inspect if the home is built off site. They may require more certification and paperwork to verify the building elements that have not been inspected.”

“Whilst Australia has a high quality building code that uses performance based requirements, many building surveyors, councils and builders feel safer using the ‘deemed to satisfy’ requirements. This can lead to new products and techniques having to work harder to get approval, which may be reasonable in the circumstances, but acts as a disincentive.” And with more new products entering the supply chain, access to insurance is also becoming an issue for builders and building surveyors.

“The prefab industry needs to develop a tailored building code and approval process and put these forward to the Federal Government and states and territories to gain support,” she says. “In countries where manufactured homes are common place, these codes exist. The purpose is not to create higher hurdles, but to tailor the rules and the process to reflect the reality of the building work.”

“PrefabAUS is working on the codes issue and HIA would support working more closely to develop and promote its use.”

GEORGE QUEZADA – RESEARCH SCIENTIST – STRATEGIC INSIGHTS DATA61 – CSIRO
While Quezada’s research has been primarily focused on traditional site based construction, rather than off-site, it does provide insights that are relevant to the prefab industry.

“When you look at the numbers, Australia’s prefab market is immature at about 3% of the construction industry, compared with leading nations in Europe or even East Asian countries like Japan, where Toyota is now operating in the housing construction market.”

“I do think Australia’s innovation performance is a critical challenge for the local prefab industry, especially as the industry is likely to require new technologies, business models and partnerships to succeed. According to the recent global innovation index, Australia is ranked 72nd in the world on innovation efficiency. This means we struggle to translate our relatively strong research assets – smart people and top research facilities and institutions – into social and economic value.”

“I also think that building information modelling holds much opportunity for the industry to develop. Having a digital model of a project should make it easier to engage a prefab company and improve communication between the company, client and designers.”

“We need to build the ‘data infrastructure’, including broadband capacity, to support the volume of data that’s likely to come from a total BIM environment. We also need to boost the skill base and better prepare the industry with data analytic skills and a capacity to integrate and develop new tools and technologies that can capitalise on data. I think it’s encouraging to see that top project management and collaboration tools like Atlassian and Aconex have actually come out of Australia. It shows we have the capability to use digital tech to improve collaboration and management of complex projects.”

“We need to build the ‘data infrastructure’, including broadband capacity, to support the volume of data that’s likely to come from a total BIM environment. We also need to boost the skill base and better prepare the industry with data analytic skills and a capacity to integrate and develop new tools and technologies that can capitalise on data.”
George Quezada – Research Scientist, Strategic Insights DATA61 – CSIRO.

“Australian based prefab companies and operations also need to consider seriously how they will compete with global tech giants and manufacturers. There’s a global race to develop and apply artificial intelligence and advanced robotic systems to the design and manufacture process. The question is: Can Australian companies develop scale to compete in that space? Free trade and advanced digital tech is likely to drive greater corporate consolidation, which could push Australia’s prefab industry down the same path as the auto industry, where Toyota Australia’s biggest competitor is Toyota Thailand, not Ford and Holden/GM, and investment capital and jobs go to the countries with the best profitability. We need a ‘war room’ type discussion to explore plausible futures for Australian prefab industry and develop strategies that are responsive to the realities of a globalised digital economy.”

VANESSA BIRD, PRESIDENT – AUSTRALIAN INSTITUTE OF ARCHITECTS VICTORIAN CHAPTER
In terms of the architecture sector’s receptiveness to offsite, the AIA’s Vanessa Bird sounds an optimistic note, while citing a finance sector not attuned to offsite as a key barrier.

“Prefabrication is not a new concept for architects. They understand the benefits it offers by reducing construction time, increasing quality control, increasing sustainability through reducing waste, and increasing workplace safety, as building sites can be dangerous places. ‘2D prefab’ has become a standard method of construction with many building components arriving on site ready to be assembled or craned into place. Smaller 3D elements such as bathroom pods are increasingly used in apartment design with benefits of both quality and speed.”

“However, the financing of prefabricated buildings is complicated and many projects stumble at this hurdle.”

DAVID CHUTER, CEO – INNOVATIVE MANUFACTURING CRC
Chuter, who has extensive experience leading change in the manufacturing sector, says change is underway, although he adds that acceptance will require changes to matters such as union representation, as manufacturing shifts from the building site to the factory, assuming the factories are in Australia.”

In terms of ‘blockages’ within the industry value chain, Chuter cites the high cost of factory labour, low cost imports, limited local scale, unionisation, investment needed in new business models and government procurement principles as barriers to uptake.

Meanwhile, he says areas that, if conditions were right, could contribute more to the uptake of prefab / offsite methodologies include “increasing uptake of advanced manufacturing technologies and business models, industry 4.0 and digitisation, investment in collaborative research and tapping into proven industry capabilities such as auto suppliers.”

“Government procurement policies supporting local manufacturing, reinforcement of standards to ensure imports meet Australian standards, and improved perception of manufacturing in Australia as an industry to invest in would all help drive the industry forward.”

JAMES MURRAY-PARKES – FOUNDER – MODULAR CONSTRUCTION CODES BOARD (MCCB)
Given the occasion of the prefabAUS Conference 2017 as an official launch pad for the Handbook for the Design of Modular Structures, it seems fitting that the last word should go to the Handbook’s chief originator and the founder of the Modular Construction Codes Board (MCCB), James Murray-Parkes. Murray-Parkes, who is Professor of Practice in the Faculty of Engineering at Monash University and head of the Engineering Innovations Group at Multiplex, echoes widespread sentiment that education is critical. “We really need to work more closely with our subcontractors and help them to innovate in terms of how they think about building. We all need to get our heads around this collectively; we must teach our trades the modular way of construction.”

“The Government must get behind education and training that’s specifically tailored to modular. A site where people can undertake this kind of training in a hands-on way needs to be piloted. The Kangan Tafe Automotive Centre for Excellence at Docklands in Melbourne is a great example of what can be done in the car industry; we need something like this for the modular / offsite industry.”

“The Government must get behind education and training that’s specifically tailored to modular. A site where people can undertake this kind of training in a hands-on way needs to be piloted. The Kangan Tafe Automotive Centre for Excellence at Docklands in Melbourne is a great example of what can be done in the car industry; we need something like this for the modular / offsite industry.”
James Murray-Parkes – Founder – Modular Construction Codes Board (MCCB)

“Education is just one part of a much-needed complete re-think about the framework within which the construction industry functions. We’re certainly keen to see the handbook form a core part of the syllabus in Tafe courses on modular; but its influence as a set of guidelines beyond the educational sphere throughout industry is also a given.”■