Why legal advice needs a seat at the table in offsite construction

Part 1 of a two-part series

As modular and offsite construction continue to attract attention as potential responses to Australia’s housing and productivity challenges, much of the discussion remains focused on manufacturing capability, automation and project delivery. (main image: Space Labs, a Freecity company, is delivering the 528-bed Herring Road student accommodation project in Macquarie Park using volumetric modular construction, with the 20-storey development set to become Australia’s tallest volumetric modular building. Credit render Space Labs / Freecity.)

Less attention is paid to the contractual and procurement framework structuring and regulatory navigation that underpins those projects.

According to Mark Glynn, Partner at Sydney-based law firm Swaab and a specialist in construction and project delivery, that imbalance is becoming increasingly important as modular and prefabricated construction moves into larger and more complex projects, particularly in the residential sector which has a strong statutory compliance overlay.

Glynn advises developers, government agencies, councils, contractors, consultants and infrastructure clients across Australia on procurement strategies, project delivery agreements, contract administration and risk allocation. He was also one of the industry and legal practitioners contributing to UNSW Business School’s Legal Essentials for Offsite Construction programme, which examined the legal, procurement and regulatory considerations shaping modern methods of construction.

Speaking with Built Offsite following his involvement in the programme, Glynn said contractual and procurement structuring should be part of project planning from the beginning rather than being introduced after major decisions have already been made.

Early contractor involvement should include legal expertise
Early Contractor Involvement (ECI) has become increasingly common across complex construction projects, bringing together designers, engineers, builders and specialist consultants before construction begins.

Glynn believes legal and procurement expertise should also be included in those early discussions.

“The earlier you bring the parties together and they all understand what is required from a procurement and regulatory point of view, the greater the chance of successful delivery,” he said.

“All parties need to understand not only their construction responsibilities but also the supply and regulatory obligations and requirements they need to satisfy.”

That becomes particularly relevant in offsite construction where delivery often extends beyond the traditional relationship between client, consultant and builder.

Manufacturers, installers, transport providers, certifiers, financiers and insurers may all influence project outcomes, creating a network of obligations that does not always fit neatly within traditional construction contracts.

“There needs to be collaboration, but there also needs to be legal collaboration and clearly defined legal relationships between all participants,” Glynn said.

For project teams, that means procurement decisions should not be viewed separately from design and delivery decisions. They are increasingly interconnected.

A decision to procure modules directly from a manufacturer, engage a builder under a separate contract, or allocate design responsibility to different parties can have consequences that extend well beyond cost and programme considerations.

Bringing legal expertise into the conversation earlier allows those implications to be identified before contracts are signed and manufacturing begins.

Managing risk before problems emerge
For Glynn, one of the most significant legal challenges in offsite construction is not manufacturing itself, but how responsibility is allocated between the various parties involved in delivering a project.

Unlike traditional construction, modular projects often involve manufacturers, transport providers, installers, developers, financiers and head contractors operating across different locations and contractual arrangements.

That complexity can create uncertainty over who is responsible when issues arise.

“The difficulty is that the head contractor and manufacturer may have no contractual relationship with one another,” Glynn said.

In some cases, a developer or principal may procure modular components directly from a manufacturer, while a separate head contractor is engaged to undertake site preparation works and modular installation.

While that arrangement may appear straightforward, it can create gaps in responsibility and regulatory compliance if obligations, interfaces and risk allocation are not clearly defined and allocated from the outset.

“We need to find ways to ensure all parties are properly involved and that risk and responsibility is allocated reasonably and fairly,” Glynn said.

That includes establishing clear interface agreements, defining responsibilities for design, manufacture, transport and installation, and ensuring project participants understand how their obligations interact with those of others.

The issue becomes even more important as projects increase in scale and involve multiple specialist suppliers. Questions such as who carries responsibility for damage during transport, who bears the risk during cranage and installation, and who is responsible for compliance declarations can quickly become contentious if they are not addressed early.

“If all parties are involved early, they gain a level of comfort and understanding about each other’s obligations. Counterparty reliability is absolutely essential where multiple interdependent parties each contribute significantly to the carrying out of residential building work,” Glynn said.

“Engineers understand the regulatory obligations affecting builders. Builders understand the requirements placed on manufacturers. Everyone develops a clearer picture of what is required to deliver the project successfully.”

The objective is not simply to reduce the likelihood of disputes. It is to identify and manage risk before manufacturing begins rather than after modules arrive on site.

Creating a coherent suite of project documents
Another issue Glynn believes deserves greater attention is the alignment of project documentation.

Modular projects often involve multiple agreements covering manufacturing, transport, installation, design responsibility, warranties and programme obligations.

If those documents are prepared in isolation, inconsistencies can emerge that may only become apparent once delivery is underway.

“You must have a coherent suite of documents. They all need to be aligned and work together,” Glynn said.

“If I’m going to be penalised for running late, or have a right to an extension of time, that ought to be a consistent obligation or entitlement up and down stream throughout the whole suite of documents.”

For developers and builders, that means reviewing contracts as part of a broader delivery framework rather than as individual agreements.

The challenge is not simply making sure each contract works on its own. The challenge is ensuring all contracts operate together to support the intended procurement model and allocate risk consistently throughout the delivery chain.

“There is a tendency to see front-end construction advice as a cost rather than an investment,” Glynn said.

“A properly structured contractual framework can prevent substantial problems later.”

Glynn’s experience advising developers, contractors and government clients has shown that disputes often emerge not because parties intended to create problems, but because responsibilities were never clearly aligned across the various project agreements.

As offsite construction continues to mature, he believes the industry’s focus on manufacturing efficiency should be matched by a similar focus on procurement and contractual clarity.

The recurring theme throughout Glynn’s discussion was that modular construction should not be viewed solely as a manufacturing challenge. It is also a procurement and delivery challenge. In his view, project outcomes are often determined long before the first panel is assembled or the first module leaves a factory, when responsibilities are allocated, interfaces are defined and project participants establish how they will work together.

Part two of this series will examine how Australia’s regulatory, insurance and finance frameworks are adapting to support the growth of offsite construction.

Find Swaab HERE