Emerging trend of modular construction

As demand outstrips supply for traditional construction methods, industry stakeholders are looking to alternative methods of construction to provide streamlined methods which are more time and cost efficient. One such solution is modular construction. This method can describe any building which consists of sections or ‘modules’ constructed offsite (in a factory or other manufacturing site), and delivered to a location to be erected into the final structural form. Recent reports predict a compound annual growth rate (CAGR) of 7.5 per cent for Australian modular building from 2022 to 2027.

This predicted growth follows a significant uplift in the adoption of prefabricated solutions over the past few years. This increase is mainly driven by the need for low to mid rise residential buildings and public housing for which modular solutions are well suited. Outside of the residential sector, modular construction methods are also being used in public spaces such as railway stations, healthcare facilities and community centres which have been built using volumetric modular construction among other methods.

Support for modular construction is coming from many different sources with industry associations and institutions in Australia promoting awareness of the benefits and applications of modular construction. The University of Melbourne is investing in research and facilities supporting the development of modular building methods. Their new, 7.2 hectare campus in the Fisherman‘s Bend precinct will house a large scale testing and training facility for the Faculty of Engineering and Information Technology (FEIT) and the Faculty of Architecture, Building and Planning (ABP). These facilities will allow their team to create full scale prefabricated structures which can be tested for acoustic and insulation quality and performance against extreme weather simulations such as bush fire, cyclone and earthquake. Their aim is to develop an onsite testing facility which can be used by the construction industry to test and develop new products which advance prefabrication methods in Australia. The facility is due to open in 2026.

The predicted rate of growth in Australia is reflective of the global trend towards modular construction with the international market predicted to increase by 70 per cent from 2020 levels to $173B by 2027.

There are a wide range of benefits ascribed to these alternative forms of construction including:
  • Reduced project time. Prefabricated elements take much less time to construct onsite also resulting in less disruption to the local population and environment.

  • Projects are less susceptible to adverse weather impacts due to most of the work being done in the controlled setting of a manufacturing site.

  • Extreme weather resilience can be improved as prefabricated elements can be tested against fire and earthquake threats. This is of particular importance as Australia grapples with the increasing incidence and costs of extreme weather events and their impacts on the population.

  • Less waste. Better use of materials and a streamlined production process means less waste and more efficient recycling processes.

  • Reduced costs of heating and cooling for the user resulting from better thermal performance of modular structures with the added benefit of reduced CO2 emissions.

  • Reduced risk of injury and accident. Construction undertaken in controlled environments carries less risk of injury and accident compared to on-site construction.

With regard to insurance considerations, modular construction presents a different risk profile to traditional building methods. Rather than having “contract works” insurance covering the onsite construction of a building, modular construction predominately occurs offsite in a warehouse, followed by transit to site. The installation at the worksite constitutes a relatively short phase of the project.

Whereas under a construction risk policy the insurer is providing cover for predominantly onsite construction activities with some offsite fabrication and transit cover included, a modular construction company is likely to have more exposure to loss or damage during such offsite fabrication and transit to the site. In particular, exposure arising from damage to structures whilst being craned into position as exclusions associated with “goods on hook” are common in relation to construction policies.

Constructors of modular buildings need to consider their unique risk profile – they are not a traditional building contractor, nor are they purely a supplier. In addition to loss or damage to the buildings themselves a significant exposure relates to product liability. In usual circumstances a contractor will have a number of warranties from suppliers to rely upon when delivering a project, however where a modular assembly occurs in a factory by employees or contractors of the modular builder, there could be a great deal more exposure in relation to product liability claims for defective materials incorporated into the modular building.

Traditional building contractors should undertake a thorough risk review with their advisors to consider the additional risks associated with modular buildings (as well as any areas where risk may be reduced) and how such risks can be managed.

Bellrock acts for several construction clients who have modular construction operations. One such client, SHAPE Australia Corporation Limited recently purchased a modular construction business K. L. Modular Systems (Aust) Pty Ltd.  This acquisition is seen as complementary to their existing business operations, enabling them to offer alternative delivery options to clients that value reduced time on site (such as schools and hospitals). SHAPE sees modular construction as an important growth area and an opportunity to deliver greater value for its clients.  “Modular construction will be integral to the future of construction, because it supports better outcomes on all the things that matter in our industry – safety, quality, productivity, efficiency and sustainability.“ (Scott Jamieson, CFO, SHAPE)

Affordable housing is a significant issue across Australia: labour and material shortages continue to impact the construction industry. In that context modular construction has merit as an alternative construction method. As with any emerging industry, the specific risks associated with modular construction will be dynamic. Specialised risk management advice and tailored insurance programmes will therefore be crucial for those involved.

Bellrock’s team of specialised construction risk professionals can assist with further information or advice on your insurance needs. Please contact us via the form below.

Stay informed with our latest articles

* indicates required