19
Examination of witnesses
Andrew Wolstenholme, Christy Hayes and David Jones.
Q35 The Chair: Welcome to the House of Lords Built Environment Committee and our evidence session as part of our inquiry into modern methods of construction. Our witnesses today are Andrew Wolstenholme, group technical director at Laing O’Rourke; Christy Hayes, chief executive officer at Vision Modular Systems and Tide Construction; and David Jones, chief executive officer at Elements Europe.
My name is Daniel Moylan, and I chair the committee. I will introduce the other Members as they ask their questions, but we all have name labels in front of us so that you know who we are. I should say at the outset, for the sake of transparency, that I served as a non-executive director of Crossrail Ltd at a time when Andrew Wolstenholme was its chief executive, so we sat on the same board together for a number of years, although in different capacities. Back in those days, on one occasion I accepted personal hospitality from Mr and Mrs Wolstenholme. As far as I was concerned, that relationship came to an end in May 2016 when I left the Crossrail board.
With that in mind, we have a number of questions, and we invite you to decide among yourselves how you might answer them. It is not essential for all three of you to answer every question, so do not feel obliged to. I ask that we try to keep both questions and answers reasonably short, ideally avoiding repetition. Everything will be transcribed, so simply saying something over and over again will not add to the weight of the evidence. That way, we think we can probably get through more questions. We start with a question from Earl Russell.
Q36 Earl Russell: Good afternoon and thank you very much for appearing before us today. First, what is driving the demand for MMC-delivered projects in your various sectors of construction?
Christy Hayes: Thank you very much for the opportunity to be here today and to partake in this inquiry. At the outset, I would like to say that the premise of your inquiry misrepresents our business success in the modern methods of construction industry. We consider that modern methods of construction have a bright future and will significantly contribute to the delivery of homes in the UK.
Earl Russell: The question is really about the drivers for demand in your sectors.
Christy Hayes: The main drivers of demand are certainty of cost, of programme and of quality. The sustainability and ESG requirements of buildings are becoming more important now and are greatly served by funding.
Andrew Wolstenholme: I do not want to repeat, but I, too, thank the House of Lords and the committee for giving us this opportunity. This is a very important subject. Six per cent of UK GDP is from construction, and up to 9% of those available to work work in this sector. When I was chair of the Construction Leadership Council back in 2017, we launched the first construction sector report, which pointed out that, if we were to deliver the infrastructure, buildings and homes over the next 10 years, we as a sector needed to improve our productivity by about 20% to 25%.
One of the first big drivers for change here is productivity, and I agree with Christy that, from our point of view, clients are looking for certainty of cost and programme, quality of as-built and over its through-life, and programme advantage. Those three things seem to be the principal drivers that we come up against more and more often.
We can talk more about why, and what is working and what is not. There is some fantastic evidence of transformational breakthroughs using modern methods of construction. I joined Laing O’Rourke, because it is one of the only companies that, over the last 20 years, has consistently invested in research and development and manufacturing capability. Despite the fact that there is lots of evidence—we can talk about examples of where it is happening and why—it has not yet happened and been delivered at scale. That is the question we have to ask.
David Jones: It is difficult not to repeat those key messages, but I will add a very important one, particularly for the construction industry at the moment, which is the skills shortage. A lot of construction projects would probably struggle to be built traditionally because of the skills shortages in those areas.
The other thing, which someone picked up on, is that, certainly in our sector, a lot of our clients have institutional funding. From an institutional funding point of view, the ESG agenda is extremely important to them, particularly their shareholders. We manage to tick a lot of boxes from the off-site MMC construction industry.
Q37 The Chair: There are seven categories of modern methods of construction, put together by some sort of committee or whatever, as a way of categorising them, moving all the way from category 7, which is fairly light, through to category 1, which is full volumetric modular delivery of units that slot together, so to speak, and things like that.
As businesses, does that list have any real relevance to you, or do you simply go, in a commercial sense, for the techniques that you find add value best and you are not really looking to list or to move up or down the list? Bureaucratically, we tend to think of firms going up and down a list like that, but maybe you do not think that way at all.
David Jones: Absolutely. We do not consider ourselves a category 1 manufacturer. We are a volumetric modular manufacturer. We also have other products—things that add value to our manufacturing process from a two-dimensional point of view—but we do not consider ourselves in any way to be category 1. We do not really have any customers that come to us on the premise of the category that we are. It is purely what we deliver, rather than the category we operate in.
The Chair: What is the driver for innovation internally, so to speak? Lord Russell asked what the drivers are from the customer side and what the market is demanding of you, but I am interested to know what is driving you internally as well.
Andrew Wolstenholme: We spoke about the certainty of the programme and the quality, but there are other things, such as the low-carbon agenda. If you take things off site, you can do something quite special to reduce carbon, particularly with concrete-type products. Improving health by avoiding substances that you do not need to be in contact with is very important, as is eliminating risk. The high-value manufacturing jobs that are created are extremely important, as is the diversity of people who join the industry. Clients are asking us to do all those things.
The categorisation is not particularly important to us. We have a vertical supply chain in Laing O’Rourke. The two shareholders, Ray and his brother, have invested nearly £200 million over the last 15 years. We deliver 2D, which is category 2, and volumetric, which is called category 1 in the MMC space, but our businesses, put together, are to pre-manufacture, to take the risk out of the construction process and to put it into manufacturing facilities. We have 20 years of running manufacturing plants, but our skills are also in how things integrate and come together and are assembled on site.
The categorisation is less important. What individual companies choose to do, and how they provide those services in order to deliver to their customers is much more important than whether they fit into category 1 or 6.
Q38 The Chair: Would you be willing—you may not—to offer any comments as to why we have recently seen a number of category 1 MMC providers, especially in the housing arena, fail or withdraw from the market? They are not necessarily your direct competitors, but you might have observed that. Another way to put the question is: how have you avoided that?
David Jones: I can offer a purely personal opinion. I am fortunate that, in my career, I have worked for at least two of the volume housebuilders that entered the single-family unit. It is a completely different model, certainly from what we do at Elements. They are trying to take a standard chassis and create a standardised manufacturing assembly line. The difficulty with that is the level of flexibility to suit the local planning requirements or customer needs. They tend to have a very narrow customer band, which is affordable housing or a similar type of housing. It will always be difficult trying to break that market, particularly when, in some geographical regions of the country, the cost of building traditionally is substantially less than the cost of building from a modular point of view.
What we do at Elements, and what I believe my colleagues on the panel do, is create solutions. We take a customer requirement for a high-rise building that is not a standardised product and create a solution through an off-site manufacture. It is a completely different model and, as I said, my personal view is that it is always difficult to try to do a volume product in a traditional industry.
The Chair: That is very helpful.
Q39 Lord Carrington of Fulham: I want to explore the financing aspects a bit—the investor reaction. Mr Jones, you mentioned that ESG is very important to institutional investors in this area. Is that very different from their attitude to investing in other construction industries? Does that get reflected in availability of funds or the pricing of the funds? How does it work?
David Jones: I believe that it sometimes makes it easier for the developer to secure those funds. Their requirements are exactly the same, regardless of what form of construction they invest in. However, from a modular or an MMC point of view, a lot of the wins they are looking for are easier to achieve. We have secured quite a large project in Birmingham. We believe that there will be 57% fewer vehicles, which equates to nearly 4,000 lorries, entering the centre of Birmingham during the project. When you start adding that up and looking at the construction carbon, embodied carbon and construction waste, they all add significantly to that agenda, which most institutional investors would be quite happy to publish in their annual report and share with the world.
Lord Carrington of Fulham: Is that cosmetic, from the investors’ point of view? In other words, are they looking for their seat in paradise rather than handing on to the industry cheaper funds, greater availability of funds or easier terms?
David Jones: The investors that I am talking about are those providing the funds—the funders, the debt funders or whatever they may be—and, certainly from my experience, it is embedded in their business. They are doing it not just cosmetically but because it is important to them. By working closely with off-site manufacturers, it is a bit easier, at times, for them to get the results they are looking for. That is my personal view.
Christy Hayes: I agree. The ethos of ESG runs deep with regard to investors. To that end, we have completed circa £3.5 billion of real estate in the London area over the last number of years. We have employed Cambridge University and Edinburgh Napier University to do studies on the embodied carbon of our completed schemes. They have demonstrated independently that we have a 45% reduction in embodied carbon. We already meet the LETI and RIBA 2030 requirements. When that is evidenced to investors, it certainly is a deciding factor in whether they prefer a development. We have worked with global investors such as Canadian, German and UK pension funds and other leading investors, and it is very well received. We also use that appraisal to target other areas where we can further our drive to net zero. It is very well received in the investment community.
Andrew Wolstenholme: This is a very important agenda and a common approach, in a sense. The small amount of debt facility that we carry is linked to net zero and diversity targets. We are very happy to develop the framework that as a company we would want to take anyway. As far as our clients are concerned, they are investors in terms of being our commission clients. It is quite clear that organisations that take the sustainability agenda seriously are being scored against the commissions that we are bidding and tendering for.
Internally, we divert a lot of our capacity to put research and development in place in materials and material science, in the products that we develop, in the design that allows them to form structures, and in the way they behave through their life cycle. This is an extremely important subject. I do not think that the sort of questions that you had to answer to win a commission probably five, and certainly 10, years ago were in any way related to where they are right now, but a considerable amount of a programme scored against commercial and quality criteria would include the environmental aspects, and it is a good driver for change.
This is an area where the industry responds and reacts pretty well from an off-site perspective, as I mentioned earlier. You can create products in a factory environment that we think are leaner in embedded carbon, and therefore it is an advantage to do that. This will get stronger, and we hope very much that everyone in that connected network—the financier, the developer, the concept designer, the contractor, the specialist supplier—understands the journey.
Lord Carrington of Fulham: Thank you very much.
Q40 The Chair: Is the significant reduction in embedded carbon—45% was mentioned, although I acknowledge it will be different from one product to another—related mainly to substituting something for concrete? Is it essentially a concrete-driven thing, or are there other significant elements to it, in terms of quantum?
Andrew Wolstenholme: We spoke about the carbon that you use to physically deliver the building. There is the embodied carbon and the carbon you use through the life of that asset. About 40% of the carbon is embodied, and a large percentage of that is from steel or concrete. Before you get into material science, if you can work with your designers to use less of the material and make it work slightly harder—there are lots of safety factors—and last longer, without doing any substitution you can find yourself in a much better carbon footprint position. It is unlikely that we will succeed in becoming net zero without replacing cement or manufacturing cement and/or steel with green energy.
Earl Russell: Am I right in assuming that there is a lot less waste as well, because of the processes you are using?
Christy Hayes: That is correct. Independent studies show that there is 95% less waste because of the processes in the factories. All that waste is recycled, so there are great savings. As my colleague just said, there are the transportation costs not just of the product, but of the labour force. At one of our manufacturing facilities in Bedford we employ 250 people, who cycle to work. They work in the same environment. They do not wake up in the morning and drive to a train station or get public transport, perhaps having to return if the weather is inclement. All those factors greatly add to the reduction in embodied carbon.
Q41 Lord Faulkner of Worcester: Good afternoon and thank you for coming. I am going to ask about training programmes in the construction industry. I should declare an ancient historical interest: in the early 1970s, I worked for the CITB.
Do you take the view that the existing training programmes are adequate to equip the workforce to use MMC effectively? If not, what can be done about it?
Christy Hayes: We have our own internal programmes for upskilling our labour force and we think that is adequate for our product. We are engaging with BedfordCollege with regard to formulating and improving that programme. More importantly, we are a vertically integrated company; we are developers, contractors and off-site manufacturers in the delivery of homes, using our volumetric construction. As we scale up, and if we supply our volumetric units to other developers, there will certainly be a need to upskill management to make them fully understand how you deliver a volumetric building successfully. That is something that we are looking at and formulating.
Andrew Wolstenholme: Are we doing enough? No. The CITB predicts that we need another 225,000 construction workers between now and 2029, and much more investment is needed. We need to retain, attract and train. The other day, I looked at some of the material that we are producing. There are not many companies that tell their new starters, “We’ve created 44,000 school places for children or 20,000 hospital beds”. The social outcomes that we produce are absolutely phenomenal, which makes it a very exciting industry.
We must be better at attracting new people. I say that for two reasons. The workforce is getting older, and we are not attracting the younger generation at the moment. Of course we still need to retain the traditional trades, and we have a programme at Laing O’Rourke called trades to technicians, but in order to deliver the output of a manufacture-style process, you need different skill sets. We need to attract the digital engineers who are going to Microsoft or Google by providing our own end-to-end digital models in Laing O’Rourke. We need to bring in the robotic engineers who may go into systems or manufacturing to be able to provide the technicians of our future. We need to retain the traditional skills but work a lot harder.
In Laing O’Rourke, with trades to technicians, we have just graduated the first cohort of advanced assembly technicians. How do you bring large components into play? This is very different from traditional construction. If MMC is to take off, we need—as per the three aspects of the Construction Leadership Council—to procure value for the MMC, to have an industry-led innovation programme and to develop the skills for the future.
We are talking here about how we can stimulate industry bodies like the CITB and organisations like ours to provide the future skills. They will be very different and much more diverse. Construction sites will not look like the sites we have today. We have an aspiration at Laing O’Rourke to make sure that our sites in 2030 are close to 50:50 diversity. You can only do that if you do something different and do not continue the current trades on existing construction sites.
Lord Faulkner of Worcester: Do you take the view that the CITB model is worth keeping, with the statutory levy and so on?
Andrew Wolstenholme: It is some time since I worked alongside the CITB. When I was the chairman of the Construction Leadership Council, the apprentice levy was just coming in, and the CITB levy was coming round the corner. People voted on it. I think there has been quite a shift of emphasis, with their not actually physically doing the training but understanding the framework within which you do training, but I have not studied it recently, so I am not entirely sure.
The Chair: I am not putting you on the spot, because you have not studied it recently, but I put it to your colleagues that there is a structural issue, is there not? In the traditional structure you have a lot of contractors and subcontractors and so on. Corralling them together for training purposes is quite difficult for one particular developer, because you are not necessarily the direct employer. Something like an industry-wide body that delivers the training, which is rather unusual but happens in construction, seems to make good sense. Mr Hayes, you said that you employ 250 people on site in Bedford.
Christy Hayes: Yes.
The Chair: That is just one facility, and no doubt there will be others. Probably Laing O’Rourke and so on have similar bodies of people. What you seem to be saying, to some extent, is that with that number of people you train your own staff, you know what they need to do and be aware of, so you can deliver that training directly. We are interested in comments on that structural issue. Is the industry changing so that that will be the model for the future?
Christy Hayes: Yes. I do think that we are attracting younger people into the industry. We are greatly encouraged that, week on week, we have somebody looking for a mortgage in Bedford, because, by its nature, working in the construction industry is very transitional—you are working in London or in various parts of the country. We are attracting a lot of young people and diversity into the industry. The number of female recruits we are getting is increasing.
The chair: That is important, but the training side of it is what we are interested in.
Christy Hayes: Basically, we have our own in-house training resources.
The Chair: You do not need the CITB, do you?
Christy Hayes: Not necessarily, no, because we need training that is very bespoke to our methodology.
David Jones: To give a slightly different thought or dimension, Elements is both a manufacturer and a contractor, so we do not manufacture for main contractors; we do the whole turnkey project. We have two parts to our business. We have what I can only describe as traditional construction, albeit of slightly different products and the way they are assembled on site. We have all the challenges that the industry has for training and recruiting from that point of view, but the other part of our business is very much a manufacturing business. Those are completely different skill sets.
Some of the MMC manufacturers that may not have succeeded have not adapted their processes to be a manufacturing process, in my view. They have tended to try to recreate a construction site in a shed, and they have relied on skilled people or traditional processes, whereas we are trying to deskill everything we do in the factory. Our key agenda is to create our own training academy, taking people who would not normally be in the construction industry, such as supermarket workers, baristas or delivery drivers, and giving them sufficient skills to be able to assemble or construct our modules in a factory, in a manufacturing environment. They are completely different skill sets and completely different industries, in a way, that we operate in.
Q42 The Chair: Thank you. The next question has fallen to me, and I ask you to give fairly short answers to it, just so that we can get through everything.
We have had conflicting evidence about the question of building regulations. Some say that there needs to be some sort of bespoke understanding of building regulations, or bespoke sets of building regulations, that address non-traditional construction methods, because, without that, it is difficult to get building regulations approval and fire approval, which is the crucial part of building regulations.
Of course, that leads to problems with customers not getting mortgages or having difficulties—all the things that flow from not having that approval. Others have told us that that is the last thing we need, because all it will do is set up another, parallel set of box-ticking regimes, and that building regulations should be focused essentially on outcomes, safety and things like that; you need to measure it against the standard measures and demonstrate that your product is compliant. Do you have a view about whether building regulations will have an impact on your move to modular construction, and the answer to this conundrum?
Christy Hayes: Yes, certainly. If you look at the history of our business, we were established building contractors and developers that identified the shortcomings in traditional construction. Fifteen years ago, we developed Vision Modular Systems to address those concerns. We consider that the building regulations are fit for purpose, and that off-site manufacturing is capable of being covered by the existing building regulations. It is up to the actual manufacturer—the volumetric or MMC manufacturer—to demonstrate compliance with those building regulations.
With regard to fire, I agree with you. It may be considered that with building regulations, MMC sits outside the fire requirements, and that is something that we take very seriously. When that was highlighted to us, we engaged with major stakeholders with regard to fire. We engaged with the London Fire Brigade, the NFCC and some of the world-leading fire engineers and experts to demonstrate to the authorities how our building would perform in fire. That resulted in our buildings exceeding the requirements of building regulations.
That is very important. With modern methods of construction, you have to lead here rather than just meet the regulations, and that is the ethos of our system. We see the building regulations as a minimum that you strive to improve. Certainly, where there are anomalies with regard to fire, it is very important to explore those with the world experts. To that end, we have published and agreed a toolkit for information to be supplied to the relevant authorities on all our developments. We take a holistic review of all our developments, and we have agreed a toolkit, which is a list of information and procedures that should be submitted when you are looking for building regulation sign-off on each of our developments, and that is very well received within the industry.
The Chair: Thank you, gentlemen. Are there any other comments on the question of building regulations and whether you feel that the system is letting you down or could be improved?
David Jones: From our point of view, a very quick answer is that we comply with the regulations, we take them as seriously as you should take them, and we have no issues with compliance. I do not believe that there should be a separate set of regulations for our industry.
Andrew Wolstenholme: I agree. We have a very strong central technical team at Laing O’Rourke, because taking a client design through the detailed design into manufacturing and handover requires us to have a very detailed understanding of the regulations, whether on fire, the environment or the Building Safety Act that is just coming in. They are complex, which is why we need strong technical leadership in order to develop that. In our view, there is no need to have a separate regulation to deal with off-site manufacturing or MMC. We are quite happy with that.
The Chair: Thank you. That leads very nicely into our next question.
Q43 Baroness Cohen of Pimlico: Thank you. I am an ex-banker as well as an ex-solicitor. I suppose the question is a legalistic one. How do you show compliance with the requirements for warranties and insurance, and do you have any difficulty in obtaining them? This is a question that governs whether anybody is going to buy your stuff or whether it is just too difficult for them.
The Chair: You may have compliance with building regulations, but, especially in housing and so on, you may then run into questions of warranties, insurance, and things like that, which deter buyers.
Christy Hayes: It is a very good question. Over the last 15 years, we have delivered £3.5 billion-worth of real estate. We have 3,000 homes on-site in various stages of completion. We partner with global investors, and we have demonstrated to them that our product is fully mortgageable, fully fundable and fully insurable. In the build-to-rent or student accommodation tenures, we can offer full 12-year defects liability insurance, and we have structural warranty in Build-Zone and Premier. We are at an advanced stage of going through the NHBC certification.
Picture a pension fund investing in one of our buildings that is over 50 storeys, which is Europe’s tallest modular building, and the level of due diligence that you have to go through to demonstrate compliance with building regulations and with fire. We demonstrated that with the engineering and the certification, and it has full accreditation for insurance, building warranty and finance.
Baroness Cohen of Pimlico: Thank you. That is a very useful answer.
Andrew Wolstenholme: When we face new markets and develop bespoke new products for them, we have, of course, to sit with a number of different stakeholders. In the past, they have included insurers and those who provide us with warranties, but I do not think we have had a problem in getting through any of the reviews. Part of the process of developing, pushing boundaries and being able to do things slightly differently is coming up against the stakeholders and ensuring that there are arrangements in place.
David Jones: Having been involved in the modular sector now for eight or more years, there certainly is a shift to an understanding from the insurers and the accreditation teams on what modular stands for and how it is built. It is a lot easier now, in my experience, to have those conversations and to get someone to know what they are looking at than it was seven or eight years ago. These days, we do not seem to have, certainly from Elements’ point of view, issues with latent defect insurers or any accreditation bodies giving us the necessary certification.
Q44 The Chair: Do you know if that is the experience of what are called category 1 MMC builders?
David Jones: We are a category 1 builder. My previous experience has been with category 1 volumetric housebuilders, a completely different sector and completely different end use, but even our clients, while they may be institutional developers or build to rent, still want an exit strategy. They still want the accreditation, so that if they decide to sell the asset after a number of years they have the relevant certification and are able to do so or have a mortgage. It is exactly the same for our product as it would be for a single-family house.
The Chair: As I understand it, three areas come up in relation to fire safety. The first is that if you are bolting modules together you inherently have the risk of gaps between them through which fire can travel, which would not be the case if you were building a brick wall, particularly. Bolt together two units and you have gaps and fire paths that can be unpredictable. The second is that if you have a large building—one of yours is 50 storeys—and it is essentially bolted together, it raises questions about structural integrity in the event of fire because there is no great structural element holding it up; it is just all bolted together. The third area is the use of timber, especially at higher levels—the wider use of timber and the potential of that. Those three particular areas tend to create issues for warranty offerers and insurers.
In a way, my question to you is: how do you avoid those? Sorry, I looked at Mr Hayes’s document earlier, because I was looking up Europe’s tallest tower, which I think is yours, in Croydon. This may not relate to the tower—these two sentences may not be connected—but the document says that its modules are made at its factories in Bedford, with integrated structural steel frames and concrete floors. However, that still leaves the question of how they are held together in a 50-storey tower and what happens when you get a fire.
Christy Hayes: Yes, and that is a very good question. That is the journey we make with stakeholders with regard to fire. Basically, we take a holistic review of the overall building. That is from foundations up with our modular system. Then, each of the primary elements of our modular system is tested with regard to fire by the BRE.Every primary element of the volumetric unit is signed off. We were askedHow will this building react in fire?” Based on that question, we commissioned the BRE to design a full-scale fire test. We assembled six volumetric units. The BRE designed, commissioned and supervised a worst-case scenario with sprinklers and ventilation failing and a fire load that you would never really have in a domestic setting. That demonstrated that our building exceeded the building control requirements on structural stability and compartmentalisation. That is the level of detail that we have gone to.
Based on that extensive fire testing, which costs considerable money, we make a holistic review of all our buildings. We appoint an independent expert fire structural engineer. They appraise our existing fire testing. If they say, “You should do more fire testing”, we do more fire testing. Then they run a thermomechanical model that demonstrates how the building will react in fire. That is then given to building control and building control peer reviews it. That is how we demonstrate that our buildings are fit for purpose with regard to fire.
The Chair: Are all your buildings fitted with sprinkler systems, even low-rise residential? We have heard that that is required in the United States where this method of construction is more common, but, as somebody is quoted as saying, we have imported the construction method without the safety concerns, and it is not required here. Is that one of the things you do without its being required?
David Jones: From our point of view, all our buildings have sprinklers, but that is not necessarily a requirement of the MMC; it is the requirement of the building, and it is the sensible thing to do for that building. It is not specifically because of the method of construction.
The Chair: Are there any other comments, gentlemen?
Andrew Wolstenholme: We would fit sprinklers where the regulation required us to. That is very clear.
The Chair: Okay, thank you very much.
Q45 Baroness Thornhill: I am really enjoying your evidence, gentlemen. I am particularly interested in local government. In particular, whenever we speak to developers or anyone from the construction industry, let us just say that planners and the planning system come in for a pretty bad press. What are your experiences of that, and in particular are there any barriers specific to MMC that you have to face and that we could highlight in any way or help to get rid of?
Christy Hayes: Certainly, for our volumetric system, there are no constraints. We offer full architectural creativity, layouts and form. From a strictly planning perspective, you cannot tell whether it is a traditional building or a volumetric building, and that was one of the primary things, when we were developing our system, that we enshrined in our key performance. Of course, we all know that the planning system is overburdened and underresourced. That is quite well recorded. It has protracted processes with unpredictable timelines. That is the biggest challenge to MMC.
When we go through a planning process, the enhancement with our system is the construction and logistics plan and the reduction in deliveries, the reduction in labour force and the reduction of the programme by up to 50%, so that box is ticked. I was on a site recently and I bumped into a member, who said, “Of all the sites in my borough, this is the one that we have the least objections to or comments on”, so that is encouraging. There is also the benefit of sustainability, which is another tick in the box.
To reiterate, we all know that the planning system is overburdened and underresourced. Our biggest challenge with regard to planning is that we need predictability of timelines so that we can book the slot in our factory and then work efficiently. There should be a mechanism in planning such that planners are aware of the fact that, if we commit to a timeline, the consequences of not meeting that timeline are more onerous on an off-site manufacturer than on a traditional builder. Within parameters of reasonable contingency and timeline, you book your manufacturing slots and work your programme in an efficient manner, and you avoid peaks and troughs in production in your factory. That would be our big ask.
Baroness Thornhill: Do you find that planners and members understand that enough?
Christy Hayes: They are so underresourced. They may understand it. We have been working in London for the last 15 years. We have gone on a journey with boroughs, and genuinely the flexibility of our system is well received. We would like the committee to get the message to central government that it is not a fast-track, because you have to comply with the building regulations, but if we commit to a planning committee date, it should go on that date. We can all make a plan of delivery if we have certainty on the actual timing of the decision.
Andrew Wolstenholme: Planning is a risk that we look at. On occasions, we take on the planning risk, and on other occasions our client does. If planning results in delay, delay is a time constraint and it will cost us money. We need to take the uncertainty out of planning. I completely agree with Christy’s view that, typically, planners are underresourced. It is undesirable for planning to cause programme delay and/or to escalate construction risk.
There is a materials aspect to planning. I want to mention one project that we are very proud of—the new Everton stadium in Liverpool. The adjacent building with 27,000 bricks was built in 1901, and the planners and architects required us to put brickwork on Everton. There is a craze about the materials that you specify. MMC has allowed us to handle all those bricks very differently from the way they were laid in 1901 to create a phenomenal product. The advantage of MMC is that you can still use traditional material. Some of our global architects are hugely surprised, and so our planners are surprised, by the quality of the output and the finish that we can get. In that part of planning, MMC has a huge part to play, and there are wonderful examples that we can demonstrate.
David Jones: To echo the comments that were made, particularly on material selection, when you look at the programme for completion of some of our projects, they have actually been slowed down by the local planners’ requirements for a traditional facade rather than embracing a modern method of construction on the facade.
We work for external developers and external clients, so there are two types of client. There are what I would call the informed clients who decide right at the beginning that they want to go down a modular or MMC route, and they design the building to align with the modern method of construction. The other kind of client wants to hedge their bets, and they are not sure which way they want to go. They have all the questions about cost and programme. They tend to develop and design the building, or certainly get planning permission, on a traditional build. We sometimes find it a hindrance trying to convert a traditional planning application to something that needs just minor tweaks, not major tweaks. We may have to realign windows, or we may have a slight creep on the height of the building because of the way we construct things, and at times that can slow down or create issues for our projects.
Andrew Wolstenholme: Can I mention one other thing? You started with the premise of local planning. Laing O’Rourke is involved in major infrastructure programmes, and the planning of those sometimes takes years. I did not want to lose the opportunity to say that MMC and the whole philosophy of build off-site is also predicated on some major infrastructure programmes. Although we are, in general terms, happy to deal with local planners, to understand how we organise and to minimise disruption, we should all be concerned about the delays against some of the strategic programmes that make the pipeline into organisations like ours very variable and very difficult to predict. It is therefore very difficult to come back to the central premise that, if you want this form of manufacturing off-site, you have to have a visible and stable pipeline to deliver it in order to attract perhaps external investment and to create profitable revenue lines. Planning of strategic programmes, in many instances, is not helping in any way.
Baroness Thornhill: We have got the message, I think, Chair.
Q46 Earl Russell: We are looking specifically at houses, and I know that there are different projects, so I am slightly asking you to speculate, but, setting that aside, some people have looked at some form of pre-planning approval. Might that be a possibility for houses? Is there a possibility that some of that might transfer into the building control at the end, or is it simply a non-starter in the system?
Christy Hayes: Certainly, for our industry, you have to respect the planning process in communities. We have a scheme of 550 homes that we delivered. We had our first pre-app, and three years later we had 550 homes delivered, and that was a double basement, 44 and 34-storey building. With a functionable planning system, it works. I do not think I am qualified to comment on the standard, but with a resourced and functionable planning system, it certainly works.
David Jones: There is a lot of conversation today about single-family units as if that is what modern methods of construction are about. It is important, certainly from Elements’ point of view, that it is understood that there are many facets of MMC. Certainly, along the table here, we are not into single-family units. We build or construct what would be a multi-storey building that would traditionally be built in a modern method of construction way. We adapt ourselves very much to the industry requirements, the regulations and the planning, and we find solutions to those requirements.
The Chair: Thank you.
Q47 Baroness Eaton: Hello. It appears from a lot of things that we read that modular construction is rather well embedded in Finland and parts of Europe. Have you come across similar challenges in your projects in other countries?
David Jones: I can answer that by saying that currently we have not operated in other countries as Elements. We are 75% owned by a South Korean conglomerate, and the main reason why it was interested in acquiring our shareholding is for the transfer of knowledge to Korea, where it is not a big sector at the moment. We have relationships with other countries. We operate under licence in other countries, and they have completely different regulations. They have struggled to adapt some of our technology, some of our IP and some of our connections just because of the local requirements. There is certainly no universal standard that can be adopted and transferred easily. In Korea, all the regulations are different with respect to acoustics and fire compartmentation. They are a lot stricter than we have in the UK. I do not suggest that we change ours to theirs, by the way. The answer to your question is that we do not have direct experience.
Baroness Eaton: But from what you understand of other countries, they have challenges, too. It is not that it is automatic and everything works smoothly.
David Jones: No, absolutely. I know that the Korean sector has been trying for a number of years to adopt MMC, because it has all the same challenges that we have for logistics, resources, labour and skills, and it has not been able to adapt successfully, for various reasons. It is not as easy as just saying, “We’re going to build modular”, and that is the way it has gone.
Baroness Eaton: We hear about Finland and Europeans. Does anybody have experience of their challenges and how they relate to us?
Andrew Wolstenholme: No, I have a slightly different perspective. Only last week we had a client group from one of the hubs that we operate in Australia, as it happens, coming to understand what we do. We took them to our manufacturing centre in the Midlands. We took them to a hospital site in south Wales, the Grange project, which was opened with zero defects and four months ahead of schedule during the pandemic. We took them to our Everton site and three sites in London. What they are trying to solve is very similar to where we find ourselves: a lack of construction resource, an overheating supply chain market and a huge potential pull for what we do here in the UK. That is a slightly different perspective.
We are very excited about the potential opportunity to export what we do. I know you are talking about what challenges other organisations or other nations have, but we are looking to solve other people’s problems, and we should be very proud here in the UK that we are forerunners of off-site manufacturing and MMC. I have decided to work for an organisation that has uniquely invested and is presenting and creating opportunities to do things overseas.
Christy Hayes: To elaborate that point, a year ago we were in Chicago for the Council on Tall Buildings and Urban Habitat Awards, a global organisation that recognises innovation and design in the construction of tall buildings. Our Ten Degrees project in Croydon, which we have already discussed, received five awards, one of which was in excellence for structural engineering. That is something the UK should be very proud of. Certainly, the feedback we are getting from our global investors is, “We like what we see here. Will you come and work in our jurisdiction?”
Going back to the premise of the inquiry, there are a lot of positive developments in off-site manufacturing and certainly in our success as a business. We have done £3.5 billion-worth of real estate. We have 3,000 homes on-site. We have worked for all the global institutions. We are internationally recognised. The UK should be very proud of what we are achieving off-site. The one or two single-home companies that got into difficulty are getting too much attention. Between them, they may have delivered between 500 and 1,000 units, and that does not reflect totally where the industry is going, certainly not from where we are sitting.
Baroness Eaton: Thank you.
Q48 Lord Best: It is very positive and encouraging to discover that it is not all about bankruptcies and business failures. That is good. My question is about the involvement of government. I am getting a strong impression that your view is, and possibly ours should be, to just let you get on with it. You do not particularly want any help on the training side. You are going to do your own training. You know what you need from your workforce, and you will do that without too much interference. With building regulations, you do not really want anything special for your yourselves. You are prepared to go along with what everybody else has to face. It is the same with planning. Everybody moans about planning, so you do too. That is absolutely no surprise to us.
That does not say to me that you need a lot of government help to make the whole enterprise worth while. Tell me otherwise. Are you looking for government money? Are you looking for the Government to do a percentage of all their own procurement using MMC, insisting on it, and requiring it of the people for whom the procurement is being made? Is there anything the Government could do to help you, or is it best to leave you to get on with it?
Andrew Wolstenholme: It is a very important question. Where I sit, there are really good examples of where MMC has created breakthroughs, but it has not been delivered at scale. The physical manufacture of products off site is one thing, but it starts with procurement. You need a modern method of procurement. That is not asking questions about getting the lowest costs; it is asking questions about how you extract value from complete thinking. You need modern methods of design, so it is about getting organisations like Laing O’Rourke—and, I am sure, my colleagues here—into the design process early. You need modern methods of payment. If you are going to run a manufacturing process, public sector clients should not be surprised about it having a different cash-flow profile. It is completely different from normal construction, so it needs a different understanding.
Some government departments appear to be moving quite quickly, and I will name some: the MoJ and DIO, the defence estates. We could not find a market because the pipeline was not there for us through residential, so, fleet of foot, we moved our product set into MoJ and into defence estates.
Lord Best: You mean prisons, in the case of the MoJ.
Andrew Wolstenholme: Prisons, detention centres and defence estates are single living accommodation, so in a sense it is living accommodation but single living accommodation. We are able with our product sets, and looking at our strategy and our pipeline, to divert our capability and capacity to do that, unlike perhaps some people anchored in residential who could not find a way through it.
My point is that MMC requires Governments to procure in a very different way. When I wrote that Construction Leadership Council report saying, “Better, more certain outcomes through digital, improved productivity through manufacturing and better performance through the life of the assets”, the Government’s part was to be able to understand how you procure such that this is the outcome. I do not think it is a case of saying, “It’s all all right then, is it?” because the answer will be led by the sector.
Government departments have to understand that, if you want to procure for value and therefore get certainty, programme and quality, you cannot continue to put risk burdens on to the supply chain such that their innovations will not create opportunity. We see too many commercial models from public and sometimes private organisations that do not adequately share out the risk burden. When I was the programme director for Heathrow terminal 5, we had a partnership of four main contractors, one of which was Laing O’Rourke, and we allowed the environment to be created where innovation came from the supply chain into the product. That is a very important point. Public sector clients do not yet behave in a way that will promote MMC and for it to just appear in the way you suggest. Modern methods of payment, modern methods of procurement and single integrated design teams are very different from the low-cost competitive tender that is simply part of the risk down the supply chain.
Christy Hayes: In the residential sector, we need demand stimulation, not supply-side support, so it is anything that the Government can do to create the demand for our products. We are on the cusp of becoming mainstream with the level of technology and our accreditation, and the fact that our product is fully mortgageable and insurable. We have a second factory in Merthyr that is commissioning, but one has to recognise the difficult economic climate that we are working in. We have visibility in our pipeline. Our factory in Bedford is at full capacity, but we will be prudent about setting up our second factory. We are engaging with repeat clients, and we have full visibility with regard to the supply chain.
Certainly, the ask would be to stimulate the demand for housing, not supply-side support, because the companies that got into difficulty, from what I understand, got a significant amount of support, so that does not add up. Of course, it could be to prime the market in category 1 to make a higher percentage of the affordable housing portfolio available or deemed suitable for off-site manufacturing. It is certainly demand stimulus. That is where we are coming from. People will want our product.
David Jones: I want to pick up on a couple of points that were made. Demand, particularly in affordable housing and opening up those markets, is very much for a traditional built market, and that, in our experience, is quite difficult to break into with some local authorities and housing associations. The other point is definitely the payment mechanism. The profile is completely different. The amount of advance funding that you need to manufacture before you actually get the payment from the client is what can make or break an organisation.
Lord Best: Thank you very much.
Q49 The Chair: Gentlemen, thank you. That is the last formal question, but it may be worth trying to add one perhaps slightly naive question. Out there, we are being watched by the wider world on television. I do not know what our numbers are, but they are probably quite impressive.
A noble Lord: Millions.
The Chair: Millions? It could be. There are a lot of people thinking, “This is all great technologically, but where are the single-family homes and the dwellings that we need coming out of this?” You are doing great stuff in certain areas. Do you see yourselves actually providing the single-family homes that people are looking for at the moment, given our great housing shortage? Are you effectively contributing to that, or are you diverting demand away into other tenures and styles such as affordable housing and buy to rent?
David Jones: I think that “diverting demand away” is the wrong statement. They are completely different sectors with completely different requirements in the market. From our point of view, single-family unit volume production is not our market. It is not something we have any plans to enter. We believe that we deliver bespoke solutions to our clients. We certainly have a system and a technology that is geared to high-rise buildings. It is not a technology, it is not a construction methodology, for a two or three-storey single-family unit. It is a completely different market for us.
Christy Hayes: It is something that we are considering, based on the relative success that we have had over the years. We are talking about 50 storeys, but we have built three storeys. We are building 2,000 units in Greenford with an average height of six storeys. In our business plan, we are currently evaluating the market with regard to single-family homes. That will involve coming up with a prototype, costing the prototype and getting an understanding of the demand. If it is a feasible business, of course we will pursue it, because it is potentially a big-volume business.
The business plan of the people who have failed was fundamentally flawed. The level of investment expended relative to the demand was the fundamental flaw. Certainly, we are evaluating the sector. Our findings will be yes or no. We are encouraged at the moment. As Dave said, it will certainly be in some geographical locations. There are some locations where you will not be able to compete, but we are certainly pursuing it.
Andrew Wolstenholme: I started by saying that we have had a long history of residential products. Those have not been, and will not be in the near future, single-living dwelling accommodation. We were very close, with a housing association and with a pension fund, to providing a product of around four to 20 storeys. The point is that the philosophy and principle of what this inquiry is looking at is whether MMC has delivered the additional productivity and the additional capacity with the industry to solve a number of problems, one of which is housing.
I feel that there is huge potential and capacity still to be extracted from this great process and this great approach. There is great advantage and huge capacity where you get teams of designers, clients and contractors together to be able to bring forward all those complex design issues and to convert today’s rather medieval approach to traditional construction into modern methods. There are some fantastic examples, I am quite sure, from my colleagues to my left and right, and equally at Laing O’Rourke, which is why I am there. The opportunity to move further forward on this is still huge, whether it is infrastructure, buildings, housing or retrofits. Modern methods of construction are absolutely live.
I have one point about procurement. If you want a low-cost building, organisations that require headroom in their profit in order to recycle that into research and development, as you would expect automotive or aerospace to do, should not be unusual. Organisations require cash flow to feed a manufacturing-style process. It has to come with complete thinking. There is a huge future, including in housing, but there has to be a pipeline and there has to be the right method of procurement. In that case, we can make a difference to the future.
The Chair: Thank you very much, gentlemen. That brings us to the end of our evidence session.
