Is procurement a barrier to modern construction?

posted by Rob Peck
29 November 2021

Procurement is often cited as a major barrier when it comes to mainstreaming modern methods of construction (MMC).

Despite factory-built homes being finished faster, with less waste and better energy efficiency than a bricks and mortar approach, offsite construction is still seen as niche, confined to pilot schemes or R&D projects.

This is common right across the world (with the exception of countries like Sweden and Japan) and it’s frequently down to the procurement headache that surrounds factory-manufactured homes.

In the public sector particularly, many housing associations and local authorities are put off by lengthy, complex tender exercises, uncertainty over how best to approach MMC procurement and the chance that few manufacturers may end up bidding.

Over the past 18 months, I’ve been working closely with social housing providers, councils and the MMC industry to tackle some of these procurement challenges. As part of the Building Better alliance, backed by the National Housing Federation, we’ve identified some key steps to remove the blockers:

Set tender red lines

The range of options around factory-built homes can feel overwhelming as you conduct a procurement exercise. To focus your requirements and narrow the field, develop a list of red lines around critical issues like fire safety, energy efficiency, gas usage, space standards, mortgageability and accessibility. If manufacturers don’t conform to these minimum requests, they can’t bid.

Engage the market early

With traditional construction, the procurement process begins by identifying a site, getting an architect to create designs, securing planning permission, tendering those designs and appointing a builder. But with MMC the order changes. If you ask a MMC supplier to tender for set designs, they might not fit with their manufacturing methods and either costs rise, or they don’t bid. That’s why early engagement with the market is crucial. Find a compliant way to engage manufacturers from the start and use their design experience to create plans that are right for all parties.

Streamline competitions

MMC frameworks have been available in the public sector for years, but few are delivering homes at scale. One reason is the heavy lifting that still faces organisations despite having a list of qualified suppliers to choose from. Housing organisations have to run further competitions as they call-off from a framework unless manufacturers have been appointed on a direct award basis. This simplified approach is one Building Better has taken and we’ve found that by setting up a direct call-off with a smaller selection of manufacturers, buyers have a speedy route to a ready-made marketplace, enabling early collaboration. To make this work, you must create a commercial approach that sets out cost structures for archetypes and customisation options.

Be flexible on payment profiles

In traditional construction, buyers pay for what they see on site. But MMC homes are produced in factories so there’s a perceived risk in paying half for nothing in return. Vesting certificates mitigate this risk by showing that ownership of MMC products will pass to the housing organisation that has procured them, even if homes have not yet been delivered. However, buyers also need to be open to new terms such as staged payments that support suppliers’ cash flow – the key is finding a balance that works for all parties.

This balance will only come through genuine procurement partnership working with the supply chain. Collaborating equally with MMC suppliers that are committed to the same values as you, listening to them and sharing the risks and the rewards will, I believe, be a game changer for modern methods of construction.

☛  Rob Peck is procurement services director at Procurement for Housing

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