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My Lords, it has been a privilege to be a member of the Select Committee undertaking this inquiry under the expert chairmanship of my noble friend Lord Patel. I declare the following interests: I am head of the Centre for Smart Infrastructure and Construction—CSIC—at Cambridge University, and until a few weeks ago I was president of the Institution of Civil Engineers. I am also an adviser to the construction company Laing O’Rourke.
I draw attention to key words in the title of our Committee’s report Off-site manufacture for construction: Building for change. Building for change is so important and so badly needed. I shall first provide some background. The UK construction industry contributes more than £100 billion annually to the economy. It is vital to solving some of the pressing problems facing us. There is a lack of affordable housing. We have ageing infrastructure that needs replacing or increasing in capacity. However, the construction industry suffers from poor productivity. New technologies, such as off-site manufacture, could considerably improve the productivity of the construction industry. In November 2017 the Government announced the construction sector deal as part of their Industrial Strategy White Paper. This aims to transform the productivity of the sector, focusing on the building of houses, schools, hospitals and major transport projects.
A key innovation contained in the sector deal is the development and commercialisation of off-site manufacturing technologies, which have the potential to transform the construction industry. This is particularly significant for housing: to address the housing crisis at least 300,000 new homes are needed annually for the foreseeable future. Off-site manufacture can lead to lower costs and faster delivery, as well as increased quality. There are preconceptions about what has in the past been referred to as pre-fab construction; these need to be dispelled. As the noble Lord, Lord Borwick, said, off-site does not mean uniform, nor does it in any way mean shoddy—at least nowadays. Bringing a manufacturing mindset to the design and construction of infrastructure, especially buildings, offers huge opportunities for harnessing the benefits of standardisation and factory manufacture without hampering architectural ambition. There is a need for new thinking at all levels: from clients, through to architects and engineering design consultants, contractors and the supply chain.
Our inquiry explored whether off-site manufacturing of buildings and infrastructure, or the components thereof, could improve productivity in the construction sector. We examined the potential benefits and drawbacks of the wider uptake of off-site manufacture, as well as how government policy, particularly around public procurement, might need to change to facilitate it. We also considered what actions the construction sector could take to drive the further use of off-site techniques. We explored not only the unrealised opportunities for off-site manufacture in construction but, more importantly, the barriers to its uptake. At the outset of our inquiry we found it useful to clarify what is meant by off-site manufacture for construction. Broadly there are two main groups. In the first, components of a building are manufactured off site then brought together on site—such as columns, floor slabs and beams. This includes pre-cast concrete, which is applicable to high-rise buildings and other infrastructure. In the second, buildings can be manufactured volumetrically, or in modules: whole segments of the buildings are manufactured and assembled off site, then the completed modules are fitted together on site. This is especially relevant to housing.
Our inquiry concluded that there are clear and tangible benefits for construction from off-site manufacture which make a compelling case for its widespread use. These include: better quality buildings and infrastructure; enhanced client experience; fewer labourers and hence increased productivity; the creation of more regional jobs; improved health and safety for workers; improved sustainability of buildings and infrastructure; and reduced disruption to the local community during construction.
In July of this year, as we were finalising our report, the Government published the details of the construction sector deal. Our committee was pleased to see that off-site manufacturing was one of the deal’s three strategic areas of focus: digital, manufacture and performance. I shall refer to the importance of digital and performance later.
The evidence we received in our inquiry revealed a strong case for the use of off-site manufacture for construction, but its use today is by no means widespread. What are the barriers? Why has off-site manufacture not been more widely adopted? The principal barrier has been the fragmentation and lack of collaboration in the construction industry. This fragmentation makes it difficult for all parties—clients, designers and contractors—to be involved from the beginning of a project. Lack of trust, and therefore a lack of collaboration, and attitudes to risk are cultural within the whole sector. This often leads to disputes which are all too often part and parcel of the construction industry.
It was clear to our committee that the construction sector needs to build trust and partnerships so that companies can work together to improve the uptake of off-site manufacture. We welcomed initiatives such as the Construction Leadership Council and the Infrastructure Client Group’s Project 13.
Project 13, published by the Institution of Civil Engineers in May 2018, is an extremely important industry-led initiative. It will improve the way high-performing infrastructure is delivered and managed. It seeks to establish a new approach within the construction sector, based on enterprise, not on traditional transactional arrangements. The most significant changes in an enterprise structure, as opposed to a transactional structure, are that the owner is central and leads the enterprise, defining long-term value; contractors, suppliers and advisers have direct relationships with the owner; and an integrator actively engages and integrates all tiers of the market. Most importantly, in an enterprise model the key contractors, suppliers, owner, adviser and integrator all work as one team to optimise value. All parties—client, architect, engineering designer and contractors—must be involved from the beginning of a project, rather than, as so often at present, the contractors only being involved at a late stage when the project has already been pre-determined, fixed and designed, with all the risk being transferred to the contractors. A key element of a successful enterprise model is risk sharing as opposed to risk transfer.
Following these principles, our report recommends that designers, contractors and suppliers must all have early involvement in a project if off-site manufacture is to be successful. This requires a change in business models in the whole sector and among clients—both private and public sector—as well as far greater collaboration. There is a need for a client’s professional team or advisers to adopt a different approach, as outlined by the Infrastructure Client Group’s Project 13, to enable off-site manufacture. Our report welcomed moves in the construction sector deal to improve the sustainability of new business models such as this.
The Government and the wider public sector are by far the biggest clients of the construction sector. The Government therefore have a key role in encouraging and facilitating the uptake of off-site manufacture.
I welcome the Government’s response to our committee’s recommendation regarding new business models for the construction sector. It is encouraging that the Government are very supportive of the initiative taken by the Infrastructure Client Group in developing Project 13: a new approach to commissioning and delivering infrastructure and construction projects.
The Government have also recognised the importance of funding research and development. The construction sector typically spends very little on R&D—the spend is much too low, as the noble Lord, Lord Stunell, has already noted, and lower than in any other sector. One of the welcome aims of the construction sector deal is to increase spending on R&D. Alongside the initial sector deal announcement, the Government announced a £170 million investment in the transforming construction programme, as part of the Industrial Strategy Challenge Fund. Innovate UK estimates that this government investment will leverage around £250 million of match funding from the industry through its contribution to funding R&D projects. We all welcome this important initiative.
Our committee recommended that a portion of Government funding for R&D in the construction sector should focus on detailed performance data for the lifetime of buildings and infrastructure. This will provide an important evidence base for improving future designs, thereby achieving significant economies. By measuring the performance we can establish the degree of overdesign of much of our infrastructure; only by doing so will real advances be made. The Government’s positive response to this recommendation confirmed their support for optimising whole-life performance of buildings and infrastructure, which is part of the transforming construction programme. This approach will also combine the rapid advances in the digital revolution with major developments in innovative sensor technologies, many of them made recently by the engineering department of the Cambridge Centre for Smart Infrastructure and Construction. These have already been deployed successfully on over 100 construction sites. Industry should aim to routinely equip new components manufactured in the factory with fibre-optic and wireless sensors. These will deliver vital digital data on the performance of infrastructure, during construction and throughout its life.
In summary, our inquiry found that there is a compelling case for off-site manufacture in construction. The Government’s overall response to our report and recommendations has been very positive, as stated by the noble Lord, Lord Patel. We highlighted that in the Autumn Budget of 2017, the Government announced the very welcome “presumption in favour” of off-site manufacture by 2019 across five departments responsible for the construction of buildings and infrastructure: the departments for transport, health, education, defence and the Ministry of Justice. Our committee strongly supported this direction of travel.
As stated by the noble Lord, Lord Patel, we recommended that the Government develop and publish a series of key performance indicators against which the success of the presumption in favour can be assessed. We also recommended that where the presumption in favour is set aside and a project goes ahead that does not use off-site manufacture, the Government should publish a statement explaining why it has not been used and justifying that decision. The Government’s response to these two recommendations appears to be somewhat lukewarm, although they did state their intention to review the position on an ongoing basis. In the light of the Government’s otherwise enthusiastic response to our report, will the Minister clarify how the presumption in favour will be given more teeth? This could have a very important influence on the uptake of off-site manufacture, a well-proven innovation that has enormous potential to transform the construction industry.