November 2022 sees the world’s leaders meet at COP 27 - the annual United Nations summit, looking at ways to reduce the impact of climate change. Globally, the waste sector is believed to contribute 10% of greenhouse gas emissions. The construction industry produces a significant amount of waste, with demolition, excavation and general construction accounting for 62% of the UK’s total waste in 2018 according to DEFRA. More worryingly, a study by Salford University believes 13% of materials delivered to site will go to waste, having never been used.
Accordingly, aligned with the prevalence and importance of businesses’ ESG strategies, and mindful of UK Government home building targets, modular construction is once again being talked about as reforming the construction industry as a ‘modern method of construction’. These methods of construction hope to use less materials, limit waste by utilising re-use methods, and the reducing the amount of plant, machinery and people required onsite.
Modular construction, or prefabricated construction is however, not a new concept, and has been increasing in popularity over the last decade. Modular type of construction was favoured after WWII to replace the depleted social housing stock. Using rapid construction off-site, where the design was uniformed, the modular component or unit would simply be ‘plugged in’ when onsite. Prefabricated however, refers to off-site construction of components, which still requires a degree of construction, such as concrete components, a roof structure, or sections of M&E.
In any event, both methods offer advantages in respect of the speed of construction, supply time, anticipated improved build quality, alongside the environmental reduction on waste and noise. A significant factor with any alternative method, however, is the monetary benefit. Through the reduction in build time, it is purposed that there will be direct savings in materials and expenses, with modular construction projected at being near 20% cheaper compared to traditional onsite construction.
Notwithstanding, there are disadvantages, which arguably have in part limited modular and prefabrication construction from becoming the dominant method. However, we are now seeing ever-increasing complexity usages for modular designs. With increased complexity, comes greater risk of failure.
Here at RHP, we have direct first-hand experience with significant losses stemming from modular and prefabricated forms of construction, through the construction phase, post completion in the defects’ rectification period and from product liability or professional indemnity perspectives.
It is relevant to consider that from the claims we have witnessed, it is fair to argue that the losses themselves, and the reinstatement programmes, have been made more costly and complex solely as a consequence of the project utilising a modular or prefabricated design.
Weather
As with any form of construction, a site will be at the mercy of the elements whether this be extreme temperatures (as seen during ‘the beast from the East’), winds, rain or snow. That risk increases prior to completion of the building envelope, or at the stage it is considered watertight. In the scenario of a modular build, whilst the modular unit should be watertight, the unit itself may be exposed for a sustained period until the overall assembly is complete. A number of modular construction projects have suffered from rainwater ingress. Notably, a loss we handled arose as a result of improper management of waterproofing materials. This allowed rainwater to become trapped in the fabric of the modular structure and required deconstruction of a number of modules in order to access and remove moisture, prior to the onset of secondary damage such as mould. This caused a significant impact both in terms of timescales and costs, impacting overall Practical Completion.
Quality
Whilst utilising a dedicated off-site manufacturing process, the aim is to improve consistency, build quality, tolerances for defects and a better overall finish. However, a number of claims arose when errors were not identified during the off-site manufacturing period, including a case where multiple omissions and failures during the off-site manufacturing were not picked up until after the units had been installed onsite. In this instance, circa 500-bathroom units were found to have a multitude of defects (design, material and workmanship) and required remediation. This caused considerable disruption to the in-situ residents at the high-end development and a significant loss for Insurers.
In another recent case, contaminated aggregate was supplied to a major contractor’s ‘in-house’ manufacturer of pre-cast concrete structural and decorative panels. Although the ‘window’ of manufacture utilising the contaminated aggregate was relatively short (a few weeks), a large number of pre-cast units were produced and sent to over 30 project sites where most were immediately installed. Defects in the panels manifested themselves as random spalling or ‘pop outs’, up to 150mm in diameter. This spalling continued on some sites for several years, long after completion and handover, causing significant problems for the contractor, and a very large claim against the aggregate supplier and its product liability insurer.
Another issue encountered was a failure between interconnecting components used to fix the modules together. This required reconstruction of fixings, which triggered a delay with Completion and a subsequent ‘Loss of Anticipated Revenue’ claim.
Other general risk factors which need to be taken into consideration based on our experience of losses which we have encountered include but are not limited to:
Overall, the construction industry maintains that the pros outweigh the cons in respect of modular and prefabricated construction. Albeit close management and oversight is necessary in order to ensure adequate standards to unlock the benefits in savings and waste reduction. Currently, the modular sector accounts for less than 5% of all construction in the UK, but those already engaged in the sector anticipate that rising to 25% in the coming years. In any event, various forms of modular or prefabrication is gaining popularity especially in respect of timber products such as cross laminated timber.
As explored, this form of modern construction brings with it its own complexities, especially when facing a potential insurance claim. There is, therefore, a need to ensure appropriate experts are engaged, who understand the nuances of these risks, and can offer better value and solutions by utilising their experience to reduce indemnity and the claim lifecycle.
If you would like any more information around claims stemming from modular construction or assistance with a potential claim, please get in touch.
About the Author:
Philip Roberts joined RHP in October 2022, having previously led the International Construction team at a large multi-national Loss Adjusting practice, and being involved with significant and complex construction losses.
