Prefab growing pains

By - , Build 166

The building industry will face new challenges as large-scale prefabrication of residential housing ramps up. Addressing issues around financing, insurance and compliance could help ease the growing pains.

MUCH HAS been made in recent months of the importance of prefabrication in the residential housing sector. While prefabricated or modular construction presents opportunities for the future, there are a number of growing pains plaguing those operating in this space.

Prefabrication answers many problems

The preconstruction of building elements off site is certainly not new, but advancing technology and changing political focus means it is not just frames and trusses, joinery and kitchen fit-outs.

The industry body for companies working in prefabricated construction, PrefabNZ, says as many as 7,000 additional homes each year from 2020 could be built through modular construction methods. Indeed, Housing and Urban Development Minister Phil Twyford said last month that, without prefabricated building methods, the KiwiBuild programme could not be delivered.

The arguments in support of the rise of modular construction methods are compelling. In 2014, PrefabNZ released a value case concluding that, in general terms, prefabrication reduces residential construction costs by 15%, can reduce construction timeframes by almost two-thirds and could lift productivity within the construction sector overall by 10%.

Some uncertainty in financing, insurance and compliance

Despite the growing prominence of prefabricated building, there remains confusion and uncertainty about how these products should be used and regulated. This uncertainty permeates not only the sector itself but the financing, insurance and assurance bodies that underpin the construction sector.

Retail banks have struggled when asked to advance mortgage finance for a prefabricated building. This is due to manufacturing occurring off site, and the risk of insufficient security against the mortgage until those elements are fixed on site.

Insurance companies remain uncertain of risk allocation amongst suppliers for prefabricated building components when, for example, elements can be manufactured by one supplier delivered to site by another supplier and issued with a Code Compliance Certificate by the relevant local councils.

While this may not be different to a traditional supply chain, the risk is amplified due to a greater risk lying all in one product and the quality oversight for this being heavily restricted.

Building consent authorities (BCAs) will also struggle to resource the processing of additional prefabricated buildings over and above existing build volumes as well as resolving the approval process where work is carried out in different BCA territories.

Many of these concerns are further complicated when considering the possibility of overseas manufacture or rogue builders in light of the domestic sector’s present limited capacity.

Purchasers of these properties may find themselves bearing the burden of defects in prefabricated homes.

Systems to help with compliance

There is a need to bring confidence to those reluctant to provide finance or insurance on this untested area of modular building for KiwiBuild’s goal of an additional 10,000 homes per year to be achievable. Responses to these concerns have been varied.

The key tools promoted by PrefabNZ under its best-practice modular design handbook to address issues are CodeMark certification and MultiProof approval.

CodeMark is a product certification scheme for both building methods and products. It can be applied to elements of a building or an entire building. The effect of CodeMark certification is that any endorsed product is deemed to comply with the Building Code, and BCAs must accept it if used in accordance with the certification. CodeMark is the only building product assurance system in New Zealand that provides an indisputable certificate of conformity with the Building Code.

MultiProof is a statement that a set of plans and specifications for a building complies with the Building Code. MultiProof approval is for developments of 10 or more buildings of the same or similar design for a given set of parameters (such as earthquake, wind and exposure). BCAs anywhere in the country must accept MultiProof as evidence of compliance with the Building Code. Applications for building consent are required to be processed in half the standard timeframe (10 working days instead of 20).

Neither CodeMark nor MultiProof replace the building consent process. However, they significantly impact the level of scrutiny a BCA is able to apply. These compliance certification methods present an accelerated pathway to obtaining Code compliance and present a potential answer to the prefabrication puzzle.

However, this can clearly only work if the industry has confidence in the certification scheme. Unfortunately, recent news surrounding the leaked audit report addressing CodeMark certification granted to aluminium composite panels – similar to those used in the Grenfell Tower – has shaken faith in some of these certification systems.

Sector asking for benchmarks

To proactively address market concerns, the modular building sector last month met with government officials in Wellington to encourage the establishment of benchmarks that require prefabricated building standards to be set higher than the minimum standards in the Building Code.

In response and seeking to address these concerns at a regulatory level, Building and Construction Minister Jenny Salesa announced a first-principles review of the Building Code and invited consultation with the wider-sector.

In addition, a government-backed insurance and funding regime, as foreshadowed by KiwiBuild, may assist in the critical task of bringing insurers and funders into the process.

However, the issue is not a question of whether the Building Code goes far enough. The issue has always been how to ensure the Building Code is being met. We hope that this will be the focus of the review announced by the Minister.

May need centralised consent authority

Off-site construction may be the key to KiwiBuild’s success, but it presents significant challenges to the existing processes and bodies charged with ensuring a sufficient supply of safe, quality homes in New Zealand.

In the long term, perhaps this role will need to be put in the hands of a new centralised building consent and certification authority. It could navigate the risks and ensure high standards and consistent delivery across the country.

Until then, we have some general advice in Table 1 for those operating or interested in this sector.

Table 1 Advice for builders of prefab construction

Consider the provenance of any prefabricated materials, especially overseas materials, and don’t consider CodeMark as absolute assurance.
Consider scheduling of progress payments around deliveries on site or appropriate other security to avoid liquidity issues.
Have early discussions with the relevant BCA on its familiarity with consenting of prefabricated componentry, even though preconsenting advice may be more expensive upfront.
Evaluate coverage of professional indemnity under existing insurance policies for off-site assembly or for damage caused in transit. Scrutinise warranties heavily.
Scrutinise any prefabricated products nominated by subcontractors and research the materials compliance. The Joint Accreditation System of Australia and New Zealand (JAS-ANZ) has records on its website of a number of instances where certification has been falsified.

Note

This article is not intended as legal advice. For specific advice, contact your legal advisor or Kensington Swan on (09) 379 4196.

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