OSC Think tank - The challenge ahead

1 Cultural change

Sir John Egan, and Sir Michael Latham before him, set agendas to change the culture and efficiency of construction. It is nearly eight years since Egan launched Rethinking Construction, which contained recommendations, perhaps revolutionary for the construction industry, but no more than evolutionary for other, newer industries.

There's no doubting that some sectors of construction have wholeheartedly embraced Egan's words. The general consensus among the panellists in Birmingham was that progress had been made on implementing many of the recommendations, except maybe for Egan's cost improvement targets, though hardly as quickly as some would like.

Buildoffsite chairman Richard Ogden sums up the frustration felt by his fellow panellists. He remarks: "Why it is taking so long is because the building industry is steeped in history. When we start drawing analogies like Egan did with the car industry, which is only 100 years old, and the aeroplane industry, which is also only 100 years old, then we find it is much easier for them to turn their mindsets around."

One of the challenges facing the off-site construction (OSC) industry is that it's not yet big enough or powerful enough to implement change on those wedded to traditional building. Odgen comments: "When you are too small to have the critical mass, it is difficult to make those statements of authority because the majority of the industry is still doing what it has done for many, many years."

Darren Richards, Mtech's managing director, feels OSC's future is inextricably linked to changing the culture of the industry, based on Egan's call for improvements to the building process. He also thinks OSC needs a champion to hasten change. "It is about people having the courage to make the size of investment that is needed to get the critical mass behind the industry," says Richards. "If a company in the UK invested between £10m and £15m, it would be considered an industry leader. Whereas in Japan, an investment of about £50m to £80m is required to achieve a critical mass and break into markets. I think we are setting our sights a little low. We need someone to take a lead - I'm sure others will follow."

Gary Saunders, managing director of washroom fit-out specialist Swift Horsman, says he has noticed more open relationships between clients and construction team members and a shift towards problem-solving. Saunders observes: "The clients we work with are more than happy for us to do more and more interface work. We then sit beside our fellow trade contractors to produce the exact details of the interface with the architect."

Saunders says the speed of construction of modern commercial towers and the quality achieved would not have been possible without OSC. "And it has happened post-Egan. Egan was the nudge that made everyone think differently."

Martin Goss, Mtech's technical director, says OSC's fortunes will improve as the culture within construction changes. "You have got to convince the bid team," he says. "Otherwise, nobody is prepared to put their head above the parapet and projects get built the way they have always been built. It is when the end client starts to ask the extra question or apply extra pressure that the dynamics start to change. That is why BAA is so successful in applying OSC solutions."

You have got to convince the bid team of the benefits of OSC. Otherwise, nobody is prepared to put their head above the parapet and projects get built the way they have always been built

Martin Goss

2 Product innovation

New and improved products and processes are paramount in the quest for better quality buildings, and none more so than for OSC. Off-site manufacturers and suppliers know that research and development and innovation hold the key to OSC being promoted into mainstream construction rather than staying as small players in a niche market.

Although all the panellists recognise the importance of innovation, they say the route from having an idea to introducing an accredited product is long, arduous and costly.

Mike Ormesher, technical manager of Springvale EPS, part of the CRH group, notes: "It can take six years to develop a new idea and the risk is that the industry has moved on by the time you launch the product."

He continues: "We have been supplying off-site products for many, many years. But it is about risk and some of our customers only like to take it one small step at a time."

Framing Solutions' managing director Adam Newton agrees: "It is difficult to predict what the different regulatory bodies will do. We have a BBA certificate because we have to have it, but it precludes innovation and slows down development. We can make a thinner wall structure and know that a particular piece of metal will do the job, but we then get sucked into the accreditation system and that is costly and time consuming."

Newton says the accreditation system within the construction industry frustrates innovation more than other industries such as aerospace and car manufacture.

Andy Hill, managing director of housing contractor Hill Partnerships, believes the social housing sector is doing a lot to promote innovation. He observes: "In social housing, a lot of clients follow the lead of government because it is grant funded and they are willing to innovate. Even when it hasn't worked out as they would have liked, there have been lessons learned and it doesn't put them off."

It takes years to develop an idea; the industry may have moved on by the time you launch the product

Mike Ormesher

However, architect Martin Wood says the government could do more to spur innovation if tax breaks were introduced to help companies that invested in research and development. He says: "Suddenly, we would probably get 200% more spent on R&D. The government should get rid of grants for R&D, then the people who are willing to invest in the first place, not those just hunting for grants, will get on with it."

3 Globalisation

OSC is already part of the global village with about 15% to 18% of the sector's £2.2bn turnover coming from abroad and an estimated 85% of all bathroom pods being imports.

Darren Richards, Mtech's managing director, thinks more pressure on the OSC supply chain may actually help create the shift in mindset that is needed. "Do we want to protect our manufacturing base here, or do we have an open mind? Are we willing to open up our market and say as long as it is the right technology, it can come from anywhere in the world?"

Carillion's Zara Lamont says: "We get our kitchens from Italy, bathroom pods from Germany, and cladding from Germany and Dubai, so we live and operate in a global village. People say they have problems selling into Europe, but overseas firms have no problems selling into us. I think we will see more and more produced abroad, particularly in China."

Andrew Orriss says that, prior to joining Mtech, he worked for 18 months on a pan-European synergy group where manufacturers looked at products that could be taken from Europe into the UK and vice-versa. He says the harmonisation of standards across the European market hasn't happened.

Buildoffsite chairman Richard Ogden feels more action is needed. He comments: "A Mondeo is the same in France as it is in Germany and the wiring in a 747 doesn't change from country to country. How come Ford and Boeing can do it, yet construction can't? Now we are finding out how they do it."

Adam Newton, Framing Solutions' MD, observes that car manufacturers have been adept at creating a local presence in every country they operate in, thereby turning a global company into a "glocal" (global but local) company. He thinks the same approach is vital for OSC companies seeking work abroad. "You need the economies of scale from globalisation, but you have to be seen as a local firm to your local client."

You need all the economies of scale from globalisation, but you have to be seen as a local firm

Adam Newton

Richards adds: "What we are seeing is the globalisation of technology and the supply chain, but we may end up becoming assemblers, not manufacturers."

Contractor Andy Hill says there are issues and risks involved in globalisation. He says: "Nobody expects it to be easy but we have the skills to embrace global technology solutions."

4 Industry collaboration

Collaborating with fellow manufacturers and main contractors is seen as an essential building block for OSC to advance.

Yet it is one that divides opinions over whether it is sound business sense to trade knowledge with competitors or be reliant on a single contractor for work.

Mike Ormesher of Springvale EPS describes the quandary facing suppliers. "When we develop a product, we go out to industry to find a partner that will help us pilot the product on site. The reaction of most contractors to this is that of wanting an exclusivity agreement to protect what they see as ‘their product' from competitors."

Ormesher continues: "Six years ago, I would say I had a problem sharing information among competitors. Now I have a different mindset. We have a Charter that says: ‘You can copy our product, but you can't copy our processes, our visions, our values and our relationships'. I now think we should share information because the further up the scale you go, the further away you are from imitation."

Getting OSC manufacturers to collaborate depends on the foresight of board level management within the companies, says Andrew Orriss, Mtech's business development manager. Orriss recalls his time with an OSC manufacturer, when he was involved in a number of development opportunities with other manufacturers. "When the ideas went back to the various groups, there was almost an arrogance among them that we know our industry better than anyone else, we don't need to work with a competitor because we are better than they are. All that boardroom egotism meant we were never allowed to go ahead. That is one reason why there is so much duplication out there."

Getting OSC manufacturers to collaborate relies on the foresight of board level management

Andrew Orriss

Manufacturers and contractors aren't the only ones that are reticent about collaborating, as Mtech's Darren Richards points out. "Some clients may not wish to share the secrets of their success and there is still an element of retaining competitive advantage."

Despite a degree of negativity within some quarters, the panellists say collaboration is the only way to meet the requirements of clients who want to mix and match various products and processes to enable the industry to move forward.

5 Mass customisation

To drive OSC forward, the dichotomy exists as to whether the best route is to offer standardised solutions or mass customisation. Standardised solutions offer manufacturers the economies of scale, but give clients limited choice. Mass customisation gives clients greater freedom to choose items such as fittings and finishes, but at the expense of repetition during the manufacturing process.

Again, the panel suggests there are lessons to be learned from car manufacturers.

Adam Newton observes: "A Jaguar X-Type is just a well dressed Mondeo as they both have the same platform. At Framing Solutions, we choose not to over-automate to retain flexibility. I'm looking for repeatability in my business at component level."

Zara Lamont agrees: "Invisible standardisation is what we should be selling to clients and the design fraternity. Whenever you talk about standardisation, it turns people off."

She feels standardisation should be used for items and components that are of secondary importance or that people can't see, leaving the way clear to offer a bespoke product for what they can see.

Invisible standardisation is what we should be selling to clients and the design fraternity

Zara Lamont

Richard Ogden says the car industry came to this conclusion many years ago. He explains: "Car manufacturers got together and looked at what they were selling. They said: ‘Is it the battery? No, therefore we want mass customisation of batteries with lowest cost and best quality.' They then looked at the tyres, then the brakes and so on. That is why you have this cost competitiveness and that is why you can buy a car for five grand - and it goes."

Ogden says that as well as mass customisation, there is a need to take a serious look at the number of components used in a building. He comments: "Let's say there are 1000 parts in a building, we want to get that down to 300, 200 or even 100. Then there will be fewer interfaces and fewer quality problems."

Architect Martin Wood believes that the solution lies within the dynamics of the industry. "Designers have lost the will to build and builders have lost the desire to design. You have to look at where the knowledge lies to address this issue."

6 Capacity

Small may be beautiful in the eyes of some, but many question whether OSC manufacturers can meet an upturn in demand.

Darren Richards, Mtech's managing director, believes capacity is not a problem at present because most manufacturers could adopt multi-shift working to meet small increments in demand. "But," warns Richards, "if off-site moves towards 5% of construction turnover, then there could be problems."

Buildoffsite, the organisation championing OSC on behalf of the DTI, wants to see current output double by 2010, which means Richards' doubts about the industry's ability to cope may well come true in less than four years' time.

Another fundamental issue affecting OSC is the fragmented nature of the industry. Nobody knows exactly how many companies operate in the sector; let alone their current output or their potential capacity. Buildoffsite chairman Richard Ogden is addressing this issue. He says: "We are putting significant effort into finding out these figures - because if you can't measure it, you can't manage it."

If you go back to Rethinking Construction in 1998, I think we have now ticked most of the boxes

Andy Hill

For steel-frame housing supplier Framing Solutions, the only thing that could hold back an increase in capacity is a lack of design resources. The firm's managing director Adam Newton says: "My biggest block to growth would be getting the design work done. We will be doing something like a £10m turnover this year, but we could increase that to £25m by increasing the number of shifts. However, the first thing to creak will be design and then our ability to install. Manufacturing capacity is not a constraint."

Framing Solutions' concerns over design could be ameliorated if there was a common software package that the company could share with the client's architects and engineers to make the design process easier and quicker. "But there isn't one," says Newton.

He also says machines won't replace men on the factory floor. "When people walk around my factory, they are surprised that we haven't got more robots. That is a conscious choice because it gives us post-process flexibility. When you automate, you lose flexibility and I think people want choice. Manufacturing costs aren't the most significant part; people are, particularly those locked into the design."

Contractor Andy Hill says: "If you go back to Rethinking Construction in 1998, I think we have now ticked most of the boxes except cost. Cost has continued to go up, it has outstripped inflation year upon year. It is all about resources and the industry hasn't got enough at present.

"We have a classic situation at the moment with timber frame. Manufacturers are used to juggling orders about, but we have hardly lost any time this winter. They predicted there would be slippage on site, but that hasn't happened and they can't keep up with their orders."

Carillion director Zara Lamont suggests capacity won't be an issue because people will be prepared to invest in new facilities if they know there is a market for OSC. Lamont says: "We haven't generated that market because we haven't got the message across to the key people about the advantages of off-site over traditional construction. A large proportion of off-site is going into traditional construction, but we are not getting the benefits because it is just a part of the jigsaw puzzle."

She says that once people appreciate the wider roles that OSC can play, not just using a single component such as a bathroom pod, the market will grow. "Once people realise the market is there, we will find lots of people ready to invest."

7 Education

Architects understand very little about off-site and are more hell bent on the planning requirements

Martin Wood

Architect Martin Wood says he was taught "nothing whatsoever" about OSC during the time he spent qualifying. He says bluntly: "Architects understand very little about OSC and are more hell bent on the planning requirements."

Wood suggests the lack of education on OSC to aspiring architects in universities and architectural schools could take many years to rectify. "The average age of a tutor is probably about 50 to 55, who has probably spent the past 20 years lecturing." These tutors, says Wood, will have little or no experience of OSC, especially the advances and technological breakthroughs that have been made over the past decade.

Mtech's Martin Goss says the OSC industry must take greater steps to inform students. "Education is the key. If we teach students about OSC, people will start to adopt it. In most of the universities, OSC is not a core subject," says Goss.

As well as educating the professions, panellists agree there is a need to train operatives.

Adam Newton says his clients insist that Framing Solutions' workers are CSCS (Construction Skills Certification Scheme) registered. Yet Newton describes the level of training as "basic, to say the least". He adds: "If someone wants a higher level of qualification and training, there is not one NVQ [National Vocational Qualification] that is focused on modern methods of construction, except for steel erection - and that is more Auf Wiedersehen Pet than what happens in the real world."

Carillion director Zara Lamont says she hopes the issue will be addressed by the industry's training body CITB-ConstructionSkills, which is looking at the new skills that will be needed for modern methods of construction.

Darren Richards feels the devolution of some of DTI's powers to regional development agencies could also assist OSC. "The government should encourage the regional development agencies [RDAs] to look at how off-site construction can be promoted in their areas. It must help RDAs understand what OSC is all about and what supply chains could do in their local areas. There are nine RDAs in England and there is a limited amount of consistency in their understanding of OSC or construction per se. The challenge for the government is to get some harmony within the RDAs and then localise what they wish to do in their own area."

Richards says he is encouraged by the action taken by Advantage West Midlands, which is funding a regional centre for OSC. The centre aims at helping firms enter the OSC manufacturing world and will support regeneration in the region.

It is about quality, making a desirable product and a lifestyle decision

Darren Richards

As for knowledge management, Richards says this is going to be a big step for Mtech. He comments: "As the market

and our business have got bigger and the global perspective has opened up, one of the industry's biggest challenges is knowledge management."

His company is investing more than £250,000 on a computer-based system, Askmtech, which will give access to the latest online information about OSC. He adds: "As an industry, we are rich in data and poor in information. We don't want to pour out data; we want to give real information and advice that is directly useable."

Richards foresees the website askmtech.com moving into profiling and ranking OSC manufacturers using an industry-recognised protocol. Clients would then be able to assess suppliers on criteria such as quality of the product, investment in manufacturing, spending on R&D, and so on. He hopes the system will go live in about six months' time.

8 Marketing

Marketing the benefits of OSC is regarded as one of the biggest challenges by the panel. Again, the automotive industry is cited as an exemplar for OSC to follow.

Darren Richards comments: "The car industry has sorted itself out in terms of marketing. The message it gives to customers is very clear - it is about quality, making the product desirable, and gives customers the perception that they are making a lifestyle decision." Richards says that communicating the same message to OSC clients is "a major challenge" because of the fragmented nature of the industry.

He feels the problem may have been compounded by "creating a language by describing things as modular, volumetric, pods and so on. Have we created a problem for ourselves by becoming more sophisticated in what we do?"

As off-site moves forward we see an increasing understanding of the manufacturing process

Richard Ogden

Fellow Mtech director Martin Goss senses clients, especially housebuyers, are "becoming more concerned about issues such as sustainability and where the materials are coming from". He says marketing should be used to get the sustainability message across to clients.

Goss also feels some components are accepted without any debate as to whether they are modern methods of construction or made off-site. He cites the truss rafter roof as a good example of a product that no longer needs to be marketed as OSC.

Contractor Andy Hill agrees: "When you look at some of the successes in our industry, the roof truss is absolutely brilliant. You couldn't buy the materials from a builder's merchants for the price they are sold at, let alone design them, take responsibility for putting them together, put them on a truck and deliver them to site - all for £25 each."

Zara Lamont adds: "The roof truss was a solution to a problem that was economically difficult and complicated on site, as well as being dangerous. The first ones weren't cheap, but it came down to: would people go back to that labour-intensive way of doing things? The answer was no and hence the price has come down considerably. It was not a case of trying to shoehorn a solution where there wasn't a problem."

Architect Martin Wood believes OSC should be marketed to clients with the message of minimising site labour. "I think everyone would agree with that," he says.

9 Supply and logistics

As the OSC market continues its upward trend, there will be all manner of strains placed on logistics and the supply chain. Not even the most fervent supporter of OSC would argue that it is the panacea for all of construction. What the panel members in Birmingham agree on is that the sustainability and continued growth of OSC will only happen if it is used on projects where it is the most appropriate solution.

Mike Ormesher of Springvale praises Defence Estates for helping to pioneer such an approach. He explains: "A portfolio was developed based on different forms of construction - traditional, modular, panelised, frame, composite, pods or whatever. We looked at each individual site and would decide which particular design suited the site - whether it was traditional or off-site construction."

What I would like to see is the government focusing on the benefits. So whether it is for lower running costs or for sustainability people specify OSC for a purpose

Zara Lamont

Framing Solutions' Adam Newton says his business could do with more private housing work. "It is only when we penetrate and get real volume in the private housing market that our manufacturing will become more competitive."

Newton and fellow suppliers could soon start to feel the strain, if some of the steps being mooted in government circles materialise. Mtech's Darren Richards explains: "There is talk about the Housing Corporation raising the bar for modern methods of construction from 25% to 50%. The Office of Government Commerce is talking about 50% for all publicly funded buildings. Then there are other things such as the NHS Procure 21 initiative, which has a very high focus on process improvement and off-site construction, and the work we are doing in the education sector for the DfES, which is dedicating a real focus on OSC."

Buildoffsite chairman Richard Ogden believes all this talk will help manufacturers. He says: "Twenty years ago, manufacturers were considered to be mere subcontractors.

As off-site moves forward, we are seeing an increasing understanding of the manufacturing process. I think that will be an important part of how the OSC industry emerges from being a little acorn into a big oak tree."

Gary Saunders adds: "In the commercial office arena we have cracked the logistical and supply-chain management challenges. The wider construction industry could learn a lot from these developments."

10 Should the government do more?

Richard Ogden's answer is a resounding "yes". Buildoffsite's chairman explains: "If you look at other governments, they have a far more active role than the UK government. In other countries, if money is being spent in the public sector, a certain amount has to be MMC or off-site construction. Here, the government has done a good job in housing and there are pockets of excellence such as the Ministry of Defence, but it has not done such a good job in schools and hospitals. We are spending £2bn a year over 15 years on schools and more OSC needs to be used."

Springvale's Mike Ormesher says: "The government's role is absolutely key to the future of OSC. Our social housing customers are using OSC because they have been driven by the government's call for 25% of a project to use some form of MMC."

Zara Lamont of Carillion concurs: "I think the housing sector shows what can be done if the government puts its mind to it. What I would like to see is the government start not from the premise that you have to use it, but by focusing on the benefits. So whether it is for lower running costs, for sustainability, or for other reasons; people specify OSC for a purpose. There must be compulsive arguments for using off-site construction, otherwise local and central government departments will just pay lip service."

Mtech's Martin Goss feels the government is wrong to focus on products not on the process. He remarks: "What the government should do now is spend less time on products and modern methods of construction and just say to industry: ‘Get your processes right'. The government is still the biggest client in construction, but hasn't done a very good job in promoting better construction. What is needed is a better procurement environment that allows better processes to exist within frameworks and partnerships. Currently, our collective ability to be better constructors is being hampered."

Andrew Orriss, Mtech's business development director, suggests government intervention has had a beneficial effect on OSC, but thinks additional help is still required. He says:

"I think government intervention has enabled manufacturers to be more innovative. I joined Mtech from manufacturing and I still see too many cases of people trying to build a traditional building in a factory. The industry has to try and think differently. I would like to see the government take the next step and assist the industry in moving forward."

Adam Newton, Framing Solutions' MD, is another who feels not all the blame should be laid at the door of government. He notes: "The government is more supportive of construction than any other industry that I've been in [aerospace and car manufacturing]. People in the ODPM are trying to help and, if there is a misunderstanding at their level, then it is incumbent on us to help them understand it."

Newton does suggest, however, that "planning needs to be sorted out" because too many projects slip beyond their anticipated start date, thereby wreaking havoc with manufacturing schedules.

Contractor Andy Hill praises the current government for the foresight, soon after coming to power, in commissioning Sir John Egan's review of the construction industry. Hill thinks that the subsequent influx of labour from Eastern Europe, following the enlargement of the European Community,

has nullified Egan's warning of skills shortages and, as a consequence, discouraged OSC. Hill says the compelling case for OSC will become even stronger "when we have more capacity within the industry".

All the panel agree with Darren Richards' call for a minister dedicated solely to construction. "After all," Richards says, "construction accounts for circa 10% of the nation's GDP."