Young families living in homes built with modern methods of construction

What is MMC?

Modern methods of construction (MMC) use offsite manufacturing to build high quality homes faster, with less waste, helping to tackle the nation’s housing shortage and provide homes that people love.

The Government drive around MMC

In 2020, then housing secretary Robert Jenrick said that he, chancellor Rishi Sunak and the chief secretary to the treasury Stephen Barclay were “hugely supportive” of using modern methods of construction to build homes.

The government has made it a condition of their £11.5bn affordable homes programme that at least 25% of those homes should be manufactured through modern methods.

© TOPHAT

The Government’s new Modern Methods of Construction (MMC) Taskforce, backed by £10m of seed funding, aims to accelerate the delivery of offsite homes across the UK, working closely with housing associations and local authorities to achieve this.

Using MMC can create a range of benefits compared to traditional construction, all of which are realised by the alternative delivery model, with elements of buildings being “pre-manufactured” away from site. This approach allows for greater control of quality and process compared to on-site activity, and utilises an entirely different labour model, the combination of which create a range of benefits, some of which are summarised below: 
 
  • Faster delivery. While some elements of the development process (such as planning) remain the same whatever the type of construction, the ability to pre-manufacture elements away from site can generate significant programme savings. Estimates for this vary, but around one third to one half of the construction period itself can currently be eliminated by utilising MMC systems.

 

  • Faster delivery of homes/income/return on investment. The natural consequence of shorter programme times is that homes are available to use sooner. This means residents can be housed sooner and that the investment in new homes can be recouped through rent sooner. This latter point is a key reason behind MMC being used widely in the Build to Rent and Student Accommodation sectors, where the initial investment in construction can be realised sooner by the institutional investors who build and own the homes, meaning they can develop more homes more quickly using MMC. The same logic and benefit will apply to affordable housing providers, who are building to own and rent an asset.

 

  • Quality. An assembly led manufacturing process can help to alleviate the potential for poor oversight of build and appropriate supervision that can happen in traditional construction. Employees are easier to oversee when they are completing tasks at a consistent workstation, supervision is easier to achieve as one inspector can monitor many builds, and a factory setting with permanently employed staff means that training and competency in workers is easier to control. Clear checking points in an assembly line are easier to sign off for quality assurance, for example confirming the presence and proper installation of fire barriers. 

 

  • The construction workforce. There is insufficient capacity within the construction industry in its current form to significantly increase the volume of homes it delivers. The industry is amid a skills shortage which is affecting both the volume and the quality of homes being delivered. This has been demonstrated most recently by reports showing that 46% of skilled foreign construction workers have been lost as a result of Brexit and the Covid crisis. MMC utilises a largely different workforce to traditional construction, encouraging the sustainability of the sector and the clean factory-based working conditions have been shown to be effective in attracting a new demographic to the industry and diversifying the workforce. 

 

  • Funding. Government policy has been moving to a position of support for MMC for at least the past five years and this is now most visibly seen in the requirement of Homes England (HE) that strategic partners deliver 25% of their programme as MMC, and more generally in both HE and the Greater London Authority (GLA) encouraging all bidders to consider MMC as an option on sites. 
Payment terms and cash flow
 
When buying an MMC product, a housing association pays for an almost finished product and the installation of that product rather than brick by brick, as in a traditional approach. In the past, manufacturers have offered a variety of payment terms, ranging from 50% of payment upfront to full payment on completion, depending on the size of the order and relationship with the customer. For Building Better, committing to a partnership approach with manufacturers means working with them to do what is right and viable for both our businesses as well as theirs. Building Better members used the competitive dialogue phase of procurement to understand what was possible and came to a conclusion about preferable payment terms to enable innovation and market resilience.
 
Assessing the financial health of manufacturers
 
Traditionally, a housing association may run a credit check or assess financial reserves of a potential contractor / developer, to be confident in the financial health of that organisation, before going into business with them. As the manufacturing side of the market is still in its nascency, a different approach to understanding individual organisation’s robustness and risk mitigations is needed. There is the additional risk of single contractor exposure. 
 
Though the window of exposure for MMC is a matter of weeks compared with months (as in traditional construction), management of these risks is of highest priority for Building Better members. The requirement of a parent company guarantee, visibility of project bank accounts and other checks and balances will be agreed through the process of competitive dialogue and after consultation with member Finance Directors.
 
Working together with a limited pool of manufacturers enables their sustainable growth and resilience in a way that would not be possible by members approaching manufacturers for ad hoc projects.
 
Contracting environment 
 
In traditional construction, housing associations pass on the risk of development to a contractor, and pay extra to pass on that risk. For both traditional construction and MMC, there are known risks and reliable, repeatable costs above ground but in both cases, the risk below ground is the greatest.
 
A Joint Contracts Tribunal (JCT) amended Design & Build contract is used most commonly to manage the relationships with contractors in traditional construction. It can be used for MMC as well but is a workaround. Ideally, a form of contract that encourages greater collaboration e.g. a Term Alliance Contract (TAC) or New Engineering Contract (NEC), would benefit all parties, including a reduction in cost for housing associations. Building Better will look to get manufacturer costings for a JCT vs. a TAC to make the transition in the longer term. 
 
We know cost certainty is key so we will create a contracting environment where all risk and costs are drawn out and wins are shared. This will ensure there are no surprises down the line, and it will identify where savings can be made throughout the project and incentivise good behaviours.
 
Proving Value for Money (VfM)
 
It is easier to prove VfM in the first year for Building Better members using the existing framework. Over time, because there is no mini competition, there are two measures that will be tracked to evidence good value.
  • Costs come down over time: the procurement process has been set up in a way to rigorously test and find the partners that will drive efficiency through the course of the framework, thereby reducing costs over time. VfM is also driven by the early engagement made possible through the Framework Alliancing Contract, which all stakeholders will be signed up to and which will reflect the shared objectives.
  • Members will be supported with comparing Building Better schemes with traditional construction as an additional check and balance.
  • VfM will not only be captured through the build process but also be evidenced by fewer defects, a better standard of homes for people to live in and a reduced carbon footprint. 

The short answer is no as it depends on a number of factors. There has been a huge reduction in capital costs over the past decade and these will continue to come down, as our pipeline grows bigger and longer.

We know the real cost reduction is in improved quality, but there is little data backed evidence of this. Building Better will continue to collect and investigate means to link the capital cost of new development to ongoing costs of housing management, maintenance and service charges.

In principle, no. In fact, with the use of Building Information Modelling (BIM) and other digital technologies which are inherent in the manufacturing process, repairs and renovations could become proactive, more efficient and less intrusive.

In practice, our asset management teams need to be involved in the development process from the beginning to ensure repairs are not attempted in the same way as would be the case with a traditional brick / cement structure. 

The biggest challenge is around insurance and the risks associated with

  • Design – for example, how materials respond to fire and how firefighters might respond to the materials, such as flooding with water and creating content damage
  • Habitation – how people use the home requires understanding of how structures are different from traditional brick

This is a myth, which has been busted since the market moved on from pre-fab buildings made in the post WWII era. It is possible to standardise performance, processes and even layouts but still retain differences in how homes look on the outside.

In fact, the more we standardise across defined criteria, the greater the ability to customise additional elements.

A closely controlled factory environment allows complete control and assurance over quality management. Some manufacturers have modelled how these practices lower future costs, however, there is simply not the volume of homes to prove this point.

Given the lack of repeatable and scalable evidence, Homes England has launched an in depth study in addition to independent research projects such as Homegroup’s Innovation Village in Gateshead.

Building Better members used the procurement process to compare manufacturers on both capital costs and evidence of improved quality via metrics such as Energy Performance Certificate (EPC) and Standard Assessment Procedure (SAP) ratings and air tightness.

Modular buildings are made from the very same high-quality materials as traditional structures and so no more harmful for the environment. In some cases, they are significantly less harmful through the use of less cement and fewer bricks, both of which are toxic to create. In some cases, materials can provide better durability and insulation, lowering the carbon footprint of the end use. 

As homes are manufactured in controlled factory environments, away from site, there is up to 90% less waste of materials, providing a more sustainable and eco-friendly way of building. Days on-site are also far fewer than traditional construction projects, so there is less use of heavy equipment and machinery, reducing power consumption.

Ministry of Housing, Communities & Local Government (MHCLG) MMC definition framework
MMC is the term often used collectively for a wide range of non-traditional building systems, which are categorised in the report.
Homes England MMC research study
This study seeks to understand the impact of MMC on the delivery of homes. This page includes a full description of its themes and metrics.
NHBC report on modern methods of construction
National House Building Council’s (NHBC) report looks at the history of non-traditional housing and pulls out the best homes from the past to inform the homes of the future.
Build Homes, Build Jobs, Build Innovation: a blueprint for a housing led industrial strategy
A report on how Government can stimulate demand for modular housebuilding

Membership of Building Better is open to any housing association or local authority housing provider in England and Wales.