The Volume Dealers

THE VOLUME DEALERS

Following on from the online Modular Matters conference and exhibition in October, a virtual roundtable focused on volumetric modular technology and the potential opportunities and challenges for providers within the residential sector.

As with much of contemporary life, the discussion took place on the Zoom platform, the ‘virtual roundtable’ looked to focus on some key themes on designing, building and importantly selling volumetric modular technology to a wider client and contractor market. It also touched on concerns surrounding productivity and sustainability that are now an ever-present aspect of project delivery. Here are some key soundbites from the session.

With huge amounts of investment entering offsite manufacturing to fund new factories and innovative products – can these examples of private sector investment sustain the expansion of the offsite manufacturing sector? Can it all just be about the money to make the sector thrive?

Andrew Shepherd, Managing Director,

TopHat: “It’s not all about money but you need to produce a viable product that fits into the marketplace and answers a question. The bottom line is that you do have to invest a lot of money to make a highly automated factory. If you want to deal with contracts at scale then there needs to be confidence in the supply chain – that is one of the biggest challenges.”

Nigel Dyke, Director, Alec French

Architects: “There is a lack of understanding of the levels of investment required of newer entrants to the market to run a successful business, but they will find a niche or they will leave the market. In some ways volumetric modular is still seen as a niche form of construction, so a lot of funders are nervous of it.”

Neel Khiroya, Managing Director,

Excelsior: “Some clients are highly informed – but is there a real understanding of what volumetric can deliver? I think there is a massive gap. The industry needs to try and find an easier way for entrants to enter the market and use modular. Developers also need to understand that there are many different systems available.”

Aviv Brosilovski, Business

Development, Forta PRO: “Not a lot of the current manufacturers and people trying to get into the modular market fully understand the scope

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of becoming a modular production facility at scale. There are a few things that need to be understood, such as how you operate a production line and keep a steady constant flow of work going through it.”

One of the conclusions from the recent report from Cast’s Mark Farmer and HTA’s Mike De’Ath outlining a ‘blueprint for a housing led industrial strategy’ was that modular manufacture could be the ‘biggest single gamechanger’ when it comes to new housing supply with more Government help. With planning often outlined as a culprit in slowing market growth is this possible?

Phillippa Prongue, Executive Director,

Apex Airspace: “We need to work with the planners on how you integrate the planning into a project. For example, an airspace development might be allowed through PDR but may need separate consent for the rest of the building if you are changing use. There is quite a lot of work to be done when looking at a whole development perspective.”

Neel Khiroya, Managing Director,

Excelsior: “I think the Government can do a lot more to help the industry. I don’t think the lines of communication are open enough. If the Government is serious and want to help modular developments come to the fore, they could help with the tax system or stamp duty reduction to make offsite developments more attractive.”

What is needed most to ensure that volumetric modular techniques are adopted by clients/contractors in greater volume? How can the industry impress on clients that modular is the way forward ahead of a traditional route?

Aviv Brosilovski, Business

Development, Forta PRO: “Familiarity and knowledge goes a long way. It is about being more open minded – in the UK more manufacturers need more projects to go and see. There is nothing like seeing reality, then there is a lot less explaining to do. The customer experience is very important. The industry has to get better at that and then it becomes a compelling proposition for clients.”

Phillippa Prongue, Executive Director,

Apex Airspace: “We need to impress the notions of quality and added value – airspace opens up a lot of opportunities as land is expensive across the London Boroughs – and there is the massive housing shortage, so we need to show that we can deliver efficiently.”

Gary Cass, Managing Director,

ICW Building Control: “For me there has to be a confidence in the product that people are investing in and rigorous testing of the market is required. The correct warranties and standard approvals from a reputable

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provider that has a good market share, ultimately drives the saleability of the product.”

Nigel Dyke, Director, Alec French

Architects: “It comes back to the certainty of the product and the market. There is a lot of innovation around and so much going on. As a designer there are so many organisations around that I can talk to. It will be interesting to see as the market matures whether there is still that richness of innovative opportunities out there.”

Maciej Pulawski, Innovation Manager,

Premier Guarantee: “We are going for a robust assessment of systems and doing our best to raise the bar and show that when we issue a certificate of conformity, then that it is a guaranteed, structurally sound and good quality building. There has to be confidence in the system as some of these are quite complex.”

Neel Khiroya, Managing Director,

Excelsior: “Proof of concept buildings built over time are important. As the market matures it becomes easier for potential adopters to see modular as successful. Some developers can see that they are behind the curve now and if they don’t start understanding modular soon then they are going to be left behind. Familiarity will build momentum. Even compared to a year ago it is a different landscape now.”

Andrew Shepherd, Managing Director,

TopHat: “One of the challenges historically has been delivering exciting projects – there has been some really good projects – but not enough exciting ones. We have to do stuff that excites and engages people at all levels and sets us apart from the rest of the industry.”

There is now a business and moral imperative to pursue low carbon design and hit net zero carbon targets. What role can volumetric modular homes play in achieving the 2050 targets and is modern living more than just keeping carbon dioxide levels in our lives lower?

Gary Cass, Managing Director,

ICW Building Control: “There are many issues surrounding low carbon but more important is how we create healthier homes and understand how buildings can enhance our health and wellbeing generally. When we can promote buildings that can prove some of those things, then that may be the turning point in capturing the public’s imagination and gaining greater positive media exposure about modular methods.”

Phillippa Prongue, Executive Director,

Apex Airspace: “Not having to demolish and rebuild is a much more sustainable way to create homes anyway, so for us we are improving what is there already. I think modular delivery can very much play a part in delivering those 2050 net zero carbon targets.”

Nigel Dyke, Director, Alec French

Architects: “The big issue with low carbon is the levels in existing buildings not new buildings. I think that one of the positive and perhaps unforeseen consequences of modular construction and more broadly offsite, is how easy it is to address low carbon and low energy targets. It makes a fantastic contribution.”

Greater collaboration throughout the construction industry has always been a challenge. Can offsite technology encourage ‘aggregation’ of demand and address some of the commercial/cost barriers linked to volume consumption? Is there room for collaboration to break down some of these barriers either at a micro or macro-level?

Andrew Shepherd, Managing Director,

TopHat: “It can be a fragmented marketplace to buy from but we need a range of suppliers with a good range of products. In some ways collaboration can run the risk of creating one homogenised product and one single solution – you get one answer to the question when really you want a range of answers.”

Nigel Dyke, Director, Alec French

Architects: “Collaborating as part of a modular project is fundamental. LaunchPad was a success as it was a collaborative approach across the board. It is about innovating and finding new ways to solve old problems and that inevitably fosters a collaborative approach.”

Gary Cass, Managing Director,

ICW Building Control: “If you look at the traditional construction industry, it is very much silo-based, and this has proven to be problematical over the years. A volumetric modular approach has the ability to have all of the elements of the team together early to ensure a better end result.”

Neel Khiroya, Managing Director,

Excelsior: “Collaborating can come down to different aspects such as micro-collaboration on roof space or a larger, wider collaboration on an entire project. We should share more or even look to operate some kind of open-source system that is constantly evolving.”

Government support and investment into the offsite homes market will help broaden its appeal to those operating in the UK. The oft-quoted requirement of 300,000 new UK homes needed annually will only be reached using a combination of housing delivery methods – can volumetric modular play a leading role?

Andrew Shepherd, Managing

Director, TopHat: “To deliver the much discussed 300,000 homes we will require a different approach. So new entrants to the market will increase capacity. It’s not about competing with the traditional model, it’s about supplementing that to increase the overall volume within the market to deliver. I can see the volumetric modular industry doubling In size and capacity over the next 12 months.”

Gary Cass, Managing Director,

ICW Building Control: “I do strongly believe it is part of the solution but not in isolation. We have to raise the profile and levels of confidence in offsite. If funding streams can be made simpler and easier to access it will become more mainstream. Also the levels of productivity across the construction industry need to significantly improve.”

Facilitator Gary Ramsay

Editor, Offsite Magazine

Aviv Brosilovski

Business Development, Forta PRO

Gary Cass

Managing Director, ICW Building Control

Nigel Dyke

Director, Alec French Architects

Neel Khiroya

Managing Director, Excelsior

Phillippa Prongue

Executive Director, Apex Airspace

Maciej Pulawski

Innovation Manager, Premier Guarantee

Andrew Shepherd

Managing Director, TopHat

Nigel Dyke, Director, Alec French

Architects: “Looking at where we are now. In a sense COVID-19 has not unearthed anything new – it has just amplified trends that already existed. Volumetric modular is the same vein as that. The demand for homes is still there and there is now an opportunity to develop a more mature market.” There is always talk of the high levels of innovation within the offsite arena – certainly the undiscovered country that airspace developments are exploiting – where it is proving what volumetric delivery can achieve in dense urban areas when ‘up’ is sometimes the only option. With a 35% decrease in construction productivity over the last nine months, mostly due to the pandemic, the modular sector is well placed to step in and plug some of that gap – there is an agility in offsite and factory manufacture that isn’t there in traditional methods. In some respects ‘production’ is almost irrelevant to ‘construction’.

Even putting COVID-19 to one side, the population is spending more time indoors – reportedly up to 60% of our lives is spent in our home. With natural resources finite, the buildings in which we live and increasingly work, need to be more environmentally-focused and provide a healthier space for the occupants. Although panellised systems are still the most widely used form of offsite in terms of volumes, it is not about playing one type of offsite off against another, it is about playing offsite off against the inefficiencies of traditional construction. It is here that the specification and adoption of more volumetric modular homes is an answer to some of these big questions that are being posed around the quality of the UK’s housing stock.

Many thanks to ICW Group, MPBA and the Volumetric Homes Group for hosting the Virtual Roundtable Event and thanks to all participants for their time and contributions to the online discussion.

For more information on Modular Matters visit:

www.modularmatters.co.uk

For more information on Volumetric Homes Group visit:

www.volumetrichomesgroup.co.uk

Images:

01. Volumetric modular technology is precision and highly automated. Courtesy TopHat 02. LaunchPad has been a hugely successful model. Courtesy Bristol Housing Festival

PREPARE

TO ACT

The focus on offsite construction has sharpened throughout the COVID-19 pandemic, with many wondering whether the outbreak and the consequential delays to existing construction projects would propel offsite forward as the future of construction.

But there has not been as much focus on a more immediate change and challenge for modern methods of construction (MMC) brought about by the new Corporate Insolvency and Governance Act 2020 (CIGA) which came into force in late June 2020. Intended to protect the UK manufacturing industry in a tough economic environment, it has caught some in the construction sector unawares and left others wondering how it fits with the Construction Act.

CIGA in Brief

CIGA brings about the biggest change to insolvency legislation in 20 years. From a construction industry point of view, the main things to be aware of are that: it has introduced two new

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restructuring ‘tools, and it disapplies a supplier's right to terminate under its contract terms if the company it is supplying to enters into insolvency proceedings (with limited exceptions). Significantly, it applies retrospectively to contracts already in place. The two new restructuring ‘tools’ introduced by CIGA are: a new moratorium on enforcement action, and a new ‘restructuring plan’ process. The moratorium is a new standalone insolvency procedure which enables a company in financial difficulty to obtain some ‘breathing space’ (i.e. protection from creditor action) to restructure its liabilities - similar to the US's Chapter 11. The new restructuring plan process is a flexible restructuring compromise allowing companies in financial difficulty (or their creditors, shareholders or members) to apply to the court to restructure their debt. Although these new options may assist financially struggling contractors and MMC suppliers in rescuing their businesses, it is the loss of the right to terminate a supply contract for customer insolvency which is of more interest.

The Right to Terminate an MMC Supply Contract

Broadly speaking, the CIGA restrictions on terminating a contract apply when a supplier is providing goods or services to a company, and that company enters into insolvency proceedings (with limited exceptions). In this case, assuming CIGA applies, the supplier cannot:

• Terminate the contract due to the company entering into insolvency proceedings (whether termination arises automatically, or whether the supplier has to exercise a right to terminate, under the contract's terms) • Terminate the contract because of a contractual right that arose before the company’s insolvency (unless the supplier terminates before the company enters into insolvency proceedings) • Say that it will only continue to supply the goods and services if the company pays all or any outstanding amounts for supplies made before the company's insolvency proceedings. So, for contractors on projects involving MMC and for suppliers of MMC products, if the company they are supplying to enters into insolvency proceedings then they cannot terminate the contract (save for the exception on the next page), they will

rank as an unsecured creditor for any unpaid invoices and will still need to continue to supply to that company – although they are entitled to payment for that ongoing supply and their creditor status for the ongoing supply will move up the creditor chain. Termination may still be possible in certain circumstances – CIGA does allow termination e.g. if the administrator or liquidator consents or if the court grants permission but this is new territory for everyone concerned. To illustrate an example. A supplier has manufactured a product, delivered it to site, raised the invoice only to find that the main contractor to whom they are supplying has entered into the moratorium. The supplier cannot terminate their contract with the contractor, they will rank as an unsecured creditor for the goods already supplied and unpaid for, and they are obliged to continue to supply further goods under the contract albeit with payment. Seems tough on the supplier but what about protection under the Construction Act and the right to suspend for non-payment? The answer at the moment is that no one is entirely sure. Our view is that the right to suspend is lost once the contractor enters into the moratorium or administration but we await a court decision to ratify that.

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What can MMC Product Suppliers Do To Protect Themselves?

For contractors on projects involving MMC and suppliers of MMC products, some key things to think about may be:

• Updating their contracts so that the definition of or references to

‘insolvency’ include the two new

CIGA insolvency proceedings • Reducing payment periods to reduce financial exposure, particularly if the supply contract is short but high value • Asking for advance payments on larger items supplied (although the company may request an advance payment bond) • Using project bank accounts or escrow accounts, to protect the pot of money allocated to the supply contract • Considering the termination rights in their contract, to allow for earlier termination where possible (e.g. if the other party's credit rating drops below an agreed threshold) • In the event of payment problems, reviewing the contract early so that any termination rights can be considered early and before the company enters into insolvency proceedings (at which point CIGA’s restrictions on termination will apply) • Exploring credit insurance.

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Of course, whether any of these or other steps can be taken will very much depend on the circumstances, such as the nature and value of the supply, and the bargaining power of and commercial relationship between the parties to the contract. It may be that the main thing that contractors and suppliers can do is keep an eye open for any warning signs around a company’s solvency, and to seek advice quickly if they have any concerns.

For more information visit:

www.womblebonddickinson.com

Images:

01-04. The new Corporate Insolvency and Governance Act 2020 (CIGA) is intended to protect the UK manufacturing industry in a tough economic environment