The modular delivery method of building construction is one in which buildings across all segments of the construction industry (commercial, multi-family, single-family, retail, mining, industrial, military, workforce housing, etc.) are constructed at highly specialized offsite manufacturing facilities in individual sections called “modules” and transported to the building site for setup and completion. Modules can be as small as a single room or a component integrated into a larger traditionally constructed building or constructed as the “building blocks” of a larger, entirely modular structure.
Modular construction has been an increasingly beneficial delivery method for a growing number of years that boasts a proven track record with developers, owners, and contractors alike. Modular construction utilizes steel, concrete, and wood structural components as well as any/all manner of interior and exterior finishes as with traditional onsite construction, although with numerous added benefits that come with a highly controlled manufacturing environment and specialized industry contractors.
Most commonly noted among the benefits of modular construction are increased cost savings, quality, and safety as well as the reduced schedule and environmental impact.
While the modular solution has inherent benefits and advantages for expanding on and adding to existing facilities, the purpose of this article is to highlight many of the benefits of modular construction within the framework of new construction, while addressing the mitigation of certain risk factors.
Noted as one of the primary benefits of modular construction, an accelerated schedule has, perhaps, the most far reaching beneficial impact. In 2011, a study by McGraw Hill Construction noted that 66% of firms who used the modular delivery method experienced a reduction in schedule with an astounding 35% of those projects realizing a decrease of four weeks or more. The key is developing/preparing the site and constructing the building concurrently, as opposed to sequentially. While the site is being developed, the utilities are being installed and the foundations are being constructed/poured, the building is being constructed offsite and prepared for delivery. Many times, the building modules are ready before the site is ready to receive them. Once the site and foundation are ready to receive them, the modules are delivered and set immediately. In many cases, the overall project schedule is reduced by 50%. Additionally, depending on the region where construction is occurring and the time of year the project commences, this can be particularly beneficial, as the ability to complete the project in favorable conditions helps to avoid severe weather conditions that can be a major cause of construction delays.
In that the building can be greater than 80-90% complete when it arrives at the site, there is a significant reduction in the amount of trade work required to complete the building. Fewer subcontractors and reduced scopes of work help to bring the overall project to a much faster completion and compress the schedule further.
One often overlooked aspect of the schedule reduction with the modular delivery method is the fact that all but a few building related inspections are completed in the factory. Most states in the US have a state-administrated modular program wherein the respective state has typical plan review/inspection and jurisdiction/authority over the building, completing all of the standard trade work inspections in the factory instead of onsite. Many times, the approved building plan set includes a state-drafted “Notification to Local Enforcement Agency” (NLEA) that directs local authorities as to which components need onsite inspection upon delivery and installation. Fewer authorities having jurisdiction and inspectors being onsite is always looked upon favorably by owners, developers, and contractors alike; however, seeing that there is a significant reduction in inspections, re-inspections, and costly potential rework due to inspector directives, modular only serves to further compress the project schedule and increase efficiency.
2. Cost Savings
A natural outcome and benefit of the major reduction to the overall schedule is cost savings. As the cost of materials and labor increases year after year, cost savings using a modular delivery method can be just as significant as the reduction in the schedule. The following are a number of ways where modular construction presents a cost savings.
According to industry standard, General Conditions account for 8 – 15% of the overall cost of constructing the building. A 50% reduction in the work performed onsite naturally leads to a proportionate reduction in General Conditions costs.
Due to a number of factors including ever-rising labor union, prevailing, and Davis-Bacon wage rates, onsite labor costs continue to rise. With labor more efficient and controlled, offsite manufacturing setting, large labor savings can be realized when compared to traditional construction.
Perhaps, depending on the industry and business, one of the most noteworthy cost benefits of modular construction, stemming from the reduction in schedule, is the ability for owners to begin making a return on investment notably sooner than with traditional construction.
With a construction cycle that is potentially reduced by 50%, construction financing is also reduced. Developers often realize savings in the areas of fewer draws from the bank, reducing loan interest, and lower costs associated with Builder’s Risk insurance coverage.
As experienced by numerous clients using traditional construction, building-related cost overruns are minimized. Typical risk factors of onsite construction such as back charges, weather, labor challenges, corrective rework, and other unforeseen conditions are all but eliminated in the weather-protected, predictable, and controlled manufacturing environment.
Having noted a study by McGraw Hill Construction titled “Prefabrication and Modularization: Increasing Productivity in the Construction Industry” a whitepaper article produced by ModSpace, a nation-wide commercial modular dealer, cited “Budgets for traditional construction projects are infamous for their increases due to change orders during the construction process. Even when prefabrication appears to be slightly more expensive at the outset, the avoidance of unexpected costs during the process is valuable, especially for owners with inflexible budgets like those in the public sectors. This reliability increases in value when combined with the guaranteed, high-quality workmanship also offered by prefabrication/modularization.”
3. Increased Quality
The modular delivery method presents a number of advantages in the area of quality. As with any other repeatable and scalable production-based manufacturer, the modular factory setting lends itself to extensive quality assurance and quality control (QA/QC) and increases the overall building quality in a number of ways. The well-lit, temperature-controlled, weather-protected environment where modules are assembled affords workers an ability to perform their work in a far superior environment which is not only safer, but produces much more consistent, higher quality results. In the same way, it affords QA/QC inspectors the same ability to perform inspections in the same consistent environment. The use of gantry cranes allows manufacturers to move modules in a streamlined assembly line from station-to-station (i.e., floors, walls, roofs, etc.) and takes advantage of these efficiencies that are not possible in the ever-changing, unpredictable, and sometimes dangerous weather conditions of traditional construction onsite.
Another quality control advantage of the weather-controlled environment within a factory is the use of dry framing, sheathing, electrical, plumbing, and other critical materials, devices/equipment that are not, and have never been, exposed to rain, moisture, and other weather-related conditions that can take a toll on the building components as it is constructed in the elements.
In certain owner surveys, even those who find no compelling cost benefit to prefabrication/modularization often choose to use modular because of the dependable quality. In addition to cost benefits, owner interviews also indicate that the reliability of the quality is an important factor in their decision in a world of reduced skilled tradesmen.
4. Safety and Site Security
As the need for controlling the work environment, ensuring 100% worker safety, and preventing “The Fatal Four” (falls, electrocution, struck-by-object, and caught in-between, which are the leading four causes of worker deaths) becomes more and more challenging, expensive, and slows onsite construction productivity, the controlled factory setting remains consistently safer for workers. In sharp contrast, traditional construction sites remain equally dangerous with injury totals remaining consistent despite ever-increased safety and control measures. It’s difficult to argue against the fact that a well-lit, weather-protected, streamlined work environment that is free of fall-from-height risks, material and equipment delivery trucks, heavy equipment, temperature extremes, rain, wind, and all manner of natural conditions is a much safer site.
Separate from worker safety, site and material security is a significant advantage of the modular delivery method. As there are far fewer stored materials onsite, naturally, theft and vandalism diminish considerably. Additionally, with a drastically reduced construction schedule, temporary site security measures do not need to be implemented for as long and insurance claims may be reduced.
5. Environmental Impacts
Some studies show that 24% of the solid waste stream in the United States is reported to be construction waste, with 160 million tons of construction and demolition debris produced annually. Similar studies report that modular construction reduces waste by 15%, which eliminates 24 million tons of waste annually. The highly efficient and consistent nature of factory construction requires fewer materials to construct the same building and lowers cost.
The use of dry materials in the manufacturing process and the elimination of water-logged framing, sheathing, insulation, and other materials reduces and/or eliminates the risk of mold and air quality issues in the building, as the component materials dry via ambient building heat.
Another important, yet under-reported environmental impact is the reduced noise on the construction site. With such a significant portion of the work happening offsite in a factory, the negative impact on noise sensitive areas such as neighborhoods, hospitals, schools, churches, retail spaces and downtown corridors is reduced to a large extent.
Overall, the risks associated with the modular delivery method of construction are the same as the rest of the construction industry. There are, however, a few unique exceptions. That is to say, the risk categories, in and of themselves, are not unique to modular; however, the merging of certain risk factors is unique and needs to be proactively and effectively addressed in order to maintain the modular advantage. While it is not an exhaustive or complete list, the following sections identify a couple of the risk factors and what can be done to mitigate them effectively.
2. Schedule, Staging and Delivery Concerns
As is the case throughout the construction industry, a poorly managed advantage can quickly become a disadvantage. Such is true with scheduling, staging, and delivery of modular assets. As noted earlier in this article, the primary advantage of the modular process is schedule efficiencies, where site and building are being constructed concurrently. However, if one of these two components languishes and significant delays occur, there can be a domino effect on the remaining scope and project. Again, this is not unique to modular. What is unique, for example, is when site construction experiences significant delays despite the building module construction remaining on schedule. Unless other contract stipulations are in place, payment is still due for those modules when they are 100% complete and ready for delivery by the factory. Additionally, a separate, and potentially costly, staging area may be necessary for local storage of the modules if space on the construction site is not available and/or the manufacturer does not have the space to store modules for a lengthy period.
These negative fiscal impacts are further compounded when the contractor domino effect is realized. As with all of the construction industry, general contractors, subcontractors, and suppliers alike keep a very tight schedule during times of construction growth. It is magnified, however, with the highly specialized manufacturers and contractors in the modular world. When compared to the volume of general contractors and subcontractors in the traditional construction industry, modular manufacturers, transporters, and setup contractors are limited in availability. A three-week delay onsite, for example, can translate to an eight-week (or worse) delay due to previously contracted schedule commitments of setup contractors. The “contractor dominos” can continue to fall from that point on.
Similar, yet conversely to the scenario where the modules are ready and the site is not, if it is the building modules that are delayed while the site construction remains on schedule, a similar risk presents itself. Anyone who’s driven on a freeway or highway knows that semi-trucks and material transporters are abundant. That is not the case with modular building transport companies. Such requires highly specialized transport trailers, equipment, and trucks to transport modular and/or mobile modules. As is the case with setup contractors, losing a transport carrier can have a similarly devastating effect on a project schedule.
These pitfalls can be avoided and the contractual and fiscal risks mitigated by implementing a professional risk management plan and establishing a number of control measures at the beginning of the project. Among those control measures is effective and thorough Due Diligence as it pertains to state/local jurisdictional authorities and the unique requirements they might place on the modular building and transport companies. States often require specific route permits that may increase the transport schedule significantly, particularly as it pertains to seasonal highway shutdowns and/or current highway construction. A thorough vetting of the modular manufacturer, setup contractor(s), and transporter(s), their licensing, capabilities, and confirmation of their respective schedules is highly recommended. Planning the project well in advance and buying out the “modular team” to reserve their schedules and “line-time” as well as planning for transport, setup, and lifting operations in favorable seasonal weather conditions will be an essential advantage. Lastly, an effective and cohesive project management team will ensure that the delivery team stays on schedule, milestones are met, and QA/QC measures are in place to avoid costly, and potentially lengthy, corrective work which jeopardizes an overall construction and delivery schedule.
Aside from the scheduling risks involved with the transport of modular buildings, there is the reality of physical transport of modules across, in certain project scenarios, one-third of the US or greater distances. Particularly in regions and seasons where weather conditions are unfavorable and/or unsafe, the longer the distance, the greater the risk of delay, accidents, or damage to the modules and/or their finishes. This can be mitigated by working with manufacturing partners who are closer to the project site; however, careful risk versus reward consideration needs to be given to the capability and quality of the manufacturer.
4. Delivery Teams Coordination
As with all other construction projects, coordination between delivery teams is of critical importance. With modular, the importance is magnified along with the risks. Having a poorly defined scope of work and uncertain delineation of responsibility between the different teams within the different stages of the modular process puts the project budget and schedule at risk.
Not starting with a “modular friendly” design usually increases the risk of budget and schedule overruns due to costly rework of architecture, design, and engineering. While the modular solution is extremely flexible, there are certain principles and industry standards of design that work better and/or best within the modular world. Setting a budget based on standard construction can lead to changes in expectation and overruns when the time comes for pricing, designing, and engineering a modular building.
The modular delivery method presents challenges and risk as it pertains to the completion of scopes such as mechanical, electrical, plumbing, and other interior and exterior finishes. Site contractor teams that are unfamiliar with or unaware of the unique shared scope of work that is customary in modular can lead to a lot of confusion and over-priced site scopes. A solid project management team that knows where the “right hand” ends and the “left hand” begins can save the project and client a significant amount of money, time, ensuring a cohesive and efficient team and achieving the best quality project outcome.
5. Quality Assurance and Quality Control
Nowhere in the construction industry is QA/QC more important than in modular construction. As the majority of the work occurs (80-90% in many cases) offsite and beyond the developer’s or general contractor’s watchful eye, the quality of product and performance can go very wrong in a hurry if effective QA/QC measures are not established, monitored, and enforced with submittals, continual effective communication, and regular inspections in the factory. Seemingly inconsequential or unimportant details to an unknowing worker in a manufacturing plant can become a nightmare of costly and time consuming rework if not identified and corrected in the factory. Case in point, even something as seemingly minor as adjusting the location of thermostats can have a significant effect. While it seems minor or of no consequence to the factory electrician, it can make a gigantic difference to the end user when it comes to placing equipment such as television and/or computer monitors, white boards, graphics, and numerous other items. A detailed and effective project management team with a keen eye for detail and the will to enforce it can save the project team and client countless headaches.
While statistics often show that the modular method of construction is, indeed, safer than traditional construction, it is not without risk. Two primary risks involved with the installation of modular buildings are craning operations and the movement/placement of modules.
While project and site conditions vary and crane size varies accordingly, any time a 200- ton (for example) or larger crane is involved, regardless of the site, safety is a major factor. A large mobile crane hoisting a 30,000-pound load, perhaps, 20 or 30 feet in the air and with a 30-foot swing radius, presents a number of risks to the entire crew. Wind and unfavorable weather conditions are of chief concern. Poor or improper choice of crane and poor hoisting and rigging practices can expose the entire site to immense risk. Mitigating and eliminating the risk takes a very vigilant crew who has a solid plan, is well prepared, and communicates effectively. Modular lifting operational safety begins with a thorough “Job Hazard Analysis (JHA)”, “rigging plan”, and “critical lift plan”. Establishing and following these plans can and will save lives. Aside from the dangers involved with lifting the modules, it takes physical “hands-on” manipulation of the modules by the lift and setup crew. Placing building modules at heights requires the installation crew to work at significant and dangerous heights. Special consideration needs to be given to the full spectrum of safety control measures.
As it pertains to the movement of modules on the ground, being struck by the delivery truck and/or the module itself, being caught in-between modules, and being crushed by modules are all real possibilities. As with the craning operations, a thorough Job Hazard Analysis (JHA), effective communication, and a proven culture of working safely are the best ways to keep workers safe and ensure the successful completion of a modular project.
7. Offsite Stored Materials
The modular construction Offsite Stored Materials risk is exactly the same, and yet, very different from the rest of the construction industry. There is a significantly increased risk, in fact. While individual components, equipment, and materials are treated the same in both delivery methods, a modular building is, itself, an offsite stored material. Nowhere else in the construction industry is the entire building (or 80-90% of it) stored offsite as a single component/unit for what can be a significant period of time.
The requirement for developers to submit substantial deposit checks in order to secure/reserve manufacturer “line-time” presents additional risk to lenders and investors in that they are funding a significant amount without anything tangible onsite for what can be months.
The overall process for mitigating these risks is the same as traditional construction; however, with a couple of critically important added steps. In addition to obtaining the Bills of Sale and providing sufficient insurance certifications, which are standard construction practice, manufacturing plant inspections are a vital part of ensuring that the materials ordered for a given set of modules are, in fact, at the plant and reserved for the project in question. In the event that a manufacturer ceases operations, the exact stored materials are identifiable and the value is recoverable.
All things considered, the modular delivery method provides, at its best, extraordinary potential benefits and advantages over site-built construction with risks that are, at their worst, on par with or lower than the risks involved with onsite construction. To find out whether the modular delivery method is, or could be, the right fit for your project, reach out to the Fulcrum team and allow us to be your Pivotal Resource!