Off-site construction: 13 contract considerations for developers

In 2020 we produced a checklist of points that developers need to factor in when considering MMC projects.

To further assist developers identify key themes in relation to their projects incorporating off-site construction, here we set out some contract specific considerations that can arise.

1. The MMC product, system, method:

The "product" is at the heart of off-site construction. Why does this matter? Well, MHCLG identifies various categories of MMC, so there is never going to be a one size fits all contract. For example, where the product is a timber-frame CLT or Glulam solution, fire safety related matters will be important. The supplier's accreditations and affiliations such as with the Structural Timber Association will also be relevant. This of course is timber frame specific and a separate set of considerations will exist where the "product" is a module.

2. Risk in respect of the off-site element

Wrapping the risk and offering a turnkey solution is a key selling point for some MMC operators, but where a client is undertaking a project, it may not always be possible for the main contractor to wrap all of the risk, i.e. to provide a single point responsibility/design and build solution. Therefore, a crucial question to ask is who has the design risk for the Works generally, and for the off-site element(s) in particular?  Once this is settled and the procurement structure established, the technical documents will need to reflect this. Interface risk is another key element here – it is important to clearly identify the party which takes this risk between the MMC product and the rest of the Works.

3. Programme

A project's success can very much depend on good project management (whether as an integrator or otherwise) and a comprehensive, live and up-to-date programme. In the off-site context the programme can include time-lines for the substructure, infrastructure and superstructure works, key dates (such as the design freeze), the factory time-table, factory inspections, time-table to check tolerances on site, delivery time-frames for the kit/product, warranty provider checks, connection dates for the services, details/dates for the transportation and on-site erection, craneage and installation of the modules.

4. Factory visits

It is worth considering whether the client or third parties wish to inspect / test the modules/MMC products in the factory. The contract will also need to be checked to see that it allows for necessary access/testing rights.  

5. Energy efficiency

Off-site construction provides a great opportunity to incorporate clean energy equipment and to improve energy efficiency. The Chancery Lane Project which we as a firm support provides useful pro bono guidance and clause drafting on energy efficiency, green construction, net zero construction etc., via its Mary's, Luna's, Estelle's Edgar's, Tristan's and Francis' clauses (as examples). If using this drafting, please speak to your legal advisor so as to check that it is appropriate for the relevant circumstances.

6. Deleterious materials and use of products

Where a combination of MMC products or a hybrid are being used, it is perhaps helpful to consider incorporating provisions in the contract that warrant their safe use all-together, or when affixing to the existing structure/works. A review of your deleterious materials clause to include references to products/systems/kits may also be required.

7. Payment

A clear payment schedule in respect of the Works (generally) and the MMC element (in particular) is needed. If the contract sum is said to include transportation, storage, handling and site logistics related costs of any prefabricated items, suggest making this clear. Consider specifics (i.e. the latest in the law) - in 2020 the case  Rochford Construction Ltd v Kilhan Construction Ltd [2020] highlighted the importance of clear and unambiguous payment provisions and the dangers of linking the final date for payment to an invoice date.

8. Supply chain

The off-site manufacturing sector is far more reliant on sophisticated supply chains. Understanding the project's supply chain and undertaking requisite due diligence automatically reduces some amount of project risk, and in addition aides with building a long-term trusting relationship which is crucial to a resilient MMC supply chain. Contractually, where a supplier / sub-contractor provides the MMC product/module suggest also reviewing the sub-contract so that the chain of contracts "talk" to each other.

9. Vesting provisions

Apart from vesting certificates, practically it is helpful to consider where the MMC product is stored, how it is identified, and whether one is able to access the factory/storage facility. If a sub-contract is yet to be negotiated/completed but advance orders need to be placed, consider if you (as a client) need to take assignment of the purchase orders. It is helpful to identify and set out within the contract the responsibility in respect of insurance or damage to the MMC product until delivery to the site.

10. Assurance

"Quality" of the build and the end product is fundamental to its rental/sale and the fundability of the asset. It is therefore important to consider in advance the assurances that can be procured such as via BOPAS and latent defects insurance.

11. Extensions of time/cost

Consider if you wish to allow extensions of time or loss and expense in relation to delays occasioned by the MMC supplier, issues with transportation/site logistics and any interface related issues with the remainder of the Works. How do these interact with other regulatory / commercial / operational matters (including Covid-19)?

12. Practical completion

Consider if you require any specific requirements to hand-over the modules or the off-site elements. Make sure that any energy efficiency related requirements/certificates are provided at this stage.

13. O&M manuals

Check to see that you have the relevant O&M documentation and that any relevant others such as tenants understand what to do and what not to do when they move in.

Summary

This is by no means an exhaustive list of contract considerations for construction contracts where MMC is involved, but all are points that you should explore carefully when embarking on a project.

With trends pointing to an increased focus in modular and offsite construction through 2021 and beyond, contact us today to learn more or for advice on MMC projects.