Examination of witnesses
Andrew Morris, Partner, Jane Richards and Jaimie Johnston.
Q30 The Chairman: Good afternoon and welcome to this session. I am afraid that the Chair of the Committee, Lord Patel, is unwell, so I am deputising for him today. Perhaps we could start by having you introduce yourselves, and if at the same time you would like to make an opening statement, you are welcome to do so.
Andrew Morris: I am an architect and the senior commercial partner at Rogers Stirk Harbour and Partners, a firm of international architects. I have been with the firm for the past 37 years. I also chair the management boards of the practice and generally look after the day-to-day business to make sure that we keep afloat. I have worked mainly in the UK on a number of notable buildings that you would probably recognise. They include Lloyd’s of London in the City, the Welsh Assembly building, the 02 Arena—not the latest iteration but for the 2000 celebrations—terminal 5, and a number of residential projects for clients for both the high-end residential and low-cost sectors. We have also just completed a new whisky distillery in Scotland for Macallan.
Jane Richards: I am a chartered structural engineer and I head up the structural engineering division of WSP, which is a large professional consultancy for engineering services. Like Andrew, my experience is quite general in building structures but also specific in modular. My involvement with modular and off-site design goes back some 15 years and includes the development of a volumetric modular system for the Unite Group, which provides student accommodation. We took a product that was suitable for a production line facility through its design development and out into manufacture. When that product was completed in 2007 it was used by the Unite Group on all its projects.
That goes right through to the present day with, for example, some projects that I am involved in now in modular and off-site. Again, they include a volumetric off-site product for the Berkeley Group, a large residential developer in the UK. That product will deliver homes that go from three storeys to 20 storeys. We also work for contractors with an interest in off-site construction, including Laing O’Rourke and the Mace Group. That is where I have experience in modular and off-site.
Jaimie Johnston: I am from Bryden Wood, which is an integrated design and operations consultancy. We have all the design disciplines, including architects and mechanical, electrical and structural engineers. Increasingly, we also have a team of data analysts and mathematicians who do early-stage problem statements and writing briefs.
Bryden Wood was set up 23 years ago and I was its first employee. We were set up to look specifically at how we could import learning and best practice from other sectors, notably manufacturing, into construction to get the benefits of better quality, fewer people, better cost certainty and so on.
My career has been involved in looking at those issues in a number of major projects. I worked on terminal 5 at Heathrow and the Olympic athletes’ village. We are currently working on the Ministry of Justice prison estate transformation. We also have a particular interest in building information modelling and digital workflows.
In our minds, the digital and the physical are increasingly interlinked. I was part of the BIM task group when level 2 was implemented from 2012, and I continue to work with departments such as the Ministry of Justice by first getting them up to speed with BIM and then using that to drive better efficiency in design and ultimately in delivery. My career has been spent trying to understand how we can import this best practice into construction.
Q31 The Chairman: Thank you. I would like to ask the first question. We have heard from a number of previous witnesses about the various advantages and benefits of off-site manufacture. Can you tell us a bit more about what you would view as the drawbacks and barriers to off-site manufacture?
Jaimie Johnston: The biggest barrier is the current fragmentation of the market at every stage of the process from design through to delivery. What we are seeing in the design space is very deep but quite narrow specialisms emerging within the design disciplines, which means that you do not necessarily have a controlling mind with a complete view of every aspect of the design.
Once we get to procurement, an awful lot of work can be put into a fabulously co-ordinated and integrated design, which then gets pulled apart into multiple individual packages that are sent out to the individual trades to price their bit of it. We are seeing increasingly that people have a very narrow view of the overall problem and potentially quite a short-term interest in the project, because they are there only for their bit of the design or procurement.
All that fragmentation creates gaps and provides opportunities for the client’s vision and requirements to be diluted, and because there is no holistic view that ties together the design requirements, the design and the means of manufacture, we are starting to lose opportunities. What manufacturing can do well is capture the voice of the customer, which becomes the thing that is persistent and drives everything. Construction is very fragmented and no one has a holistic view, which makes it very hard to get the level of integration that you need to drive a manufactured outcome properly.
Jane Richards: I mentioned my experience with the Unite Group. When it came to the 2008-10 downturn in the industry, having invested hugely in a factory, a production line and a commitment to building in that way, suddenly the funds were not available for more development. A three shift per day pattern at the factory went down to zero and the factory had to be shut for six months. When the group took stock of that, it decided that it was not sustainable into the future, so it took the unfortunate decision to close the factory and put it into administration, and all that investment went.
I think the industry has matured, and as Jamie has said, there are a number of different aspects to it now. While I am always mindful of that, I am surprised at how much investment is being made by individual companies into off-site at the moment, so it is clearly of enormous benefit to businesses.
At the same time, if we cannot enable them to have a secure pipeline and a better understanding of how their commissions are going to come in, that is a big drawback. Let us look at the people who are investing, such as the Berkeley Group and Laing O’Rourke, which has just signed a development agreement with Stanhope and has secured a pipeline of 10,000 units a year. Unless those strategic pipelines can somehow be put in place, there is a danger that it could stall. If that could be addressed in some way, it would be a benefit for all.
Q32 Lord Vallance of Tummel: This touches on something we talked about earlier. There is a fragmentation of cultures, which seems to be as much a cultural issue as anything else. Architects, designers, engineers, contractors and the trades all have their cultures. If you are going to align a set of different cultures, you need real leadership and something that has leadership right through the chain. Is there any sign of that arriving?
Andrew Morris: I was going to pick up on that exact point. You are absolutely right to say that the first thing that is needed is a willingness to change. As Jaimie has said, although we talk about the construction industry in the same way that we might talk about aerospace or automotive, it is not, really. It is actually a massive infrastructure at one end and small domestic products at the other.
Each of those has its own silo for procuring work and each has its own ways of working that tend to be traditional. The first thing that one has to get over is the desire and the willingness to make a change. The only way in which off-site can work is in combination with design for manufacture, which really means focusing on the end product and putting together the skills necessary to concentrate on delivering the end product. Then, the most important thing is to devise a procurement process that is a contractual environment and an insurance environment that enables the team to focus solely on delivering the end product. That would be a root and branch change.
There are certainly pioneers, which Jane has mentioned, that are trying to do so, but the vast majority of the industry is still happy to stay where it is. I recently read the report of the NBS national construction contracts tribunal, which comes to the very sorry conclusion that the people who contributed to the survey take disputes within the construction industry as part and parcel of the way they work. That is a damning outcome, so I agree absolutely that it requires a change of heart, a change of mind and a change of focus.
This is where public procurement can offer a signal. It can produce exemplar projects and show the way on the changes that need to be made, but first one needs to start to address the whole contractual arrangements in building contracts and the insurance regime to allow that to happen.
Lord Vallance of Tummel: As someone who knows nothing about the market, all of this argues for some form of vertical integration. You would then have the whole chain, so if you wanted to change the culture you would have the levers to do it. Is anyone thinking about vertical integration?
Jane Richards: The Institution of Civil Engineers is running its Project 13 initiative at the moment. It seeks to address change in the industry, so there are initiatives going on that are being led by the top of the engineering industry. I do not think that everything is in place to make the sort of change that you have described, but some initiatives should be encouraged and worked on. They are also very wide-ranging, and it will take some time to change the industry fully, but a focus on off-site coming out of those initiatives would be a useful thing.
Jaimie Johnston: We are seeing some clients starting to address vertical integration, notably companies like GlaxoSmithKline. They recognise that their attitude to risk has to change. Picking up on Andrew’s point, clients tend to put the risk on to the tier 1 contractors, who then put some of the risk on to their supply chain, so it gets passed down.
I do not think we will crack this until we can absolve the contractors of some of their risk. At the moment we are asking them to do something unusual and to try out new ways of working, but the contractual tool has a lump-sum fixed price. There is a constant tension between the need to do what has always been done to get cost certainty and the need of the client to try something different. We see it be successful when a client steps in and says, “Actually, it’s still all my risk. I’ll absolve you of some of that risk and I’ll take a much more active role in developing the brief and understanding the vision and the supply chain. I’ll take some of the pain away”. That enables the behaviours in dispute resolution and hiding behind the contract.
However, Andrew is absolutely right to say that until we get the procurement tools to work better, it is going to be very hard for people to make the cultural shift. At the moment, they are trapped.
The Chairman: What incentivises clients to act in that way?
Jaimie Johnston: Companies such as GlaxoSmithKline have recognised that they are not getting a fantastic product from the construction industry. We looked at the figures from one of the big departments, which found that only half of every pound that is being spent ends up in physical asset value. The next biggest chunk is risk, and then an awful lot of non-value-added money disappears into rework, profit on profit and transactional costs. Companies such as GlaxoSmithKline are saying, “If I can get closer to the actual asset cost, I would immediately get buildings an awful lot more cheaply. What would I need to do to cut out some of the inefficiency? I need to step into that space”.
I suggest that there is now enough evidence to demonstrate that off-site can deliver projects that are better quality, cheaper and quicker and that use more diverse people. But to do that you have to step into the space and say, “I will start to drive out some of the waste by putting in place a more efficient, vertically integrated process”. In that way, the customer is more persistent through the life of the project.
Andrew Morris: I want to add to Jaimie’s point. We were both involved in terminal 5 at Heathrow Airport, which was a classic example. The client, the British Airports Authority, took on the full insurance risk, so none of the consultants had to take out individual policies. It put together a combined team of designers and contractors with a supply chain in one place, so that we were all together. It was a project team, and I think that in the end the BAA valued the quality, the cost certainty and the predictability that comes from putting all that together. The product, terminal 5, is there to be seen today.
Q33 Lord Kakkar: The sixth question on our list sits quite comfortably here. The focus of the discussion has been on the client perhaps taking more risks and being more imaginative in the way it contracts and deals with the disposition of responsibilities. However, should the Government be doing more to make it more attractive for clients to do that?
Jaimie Johnston: We are starting to see, in the Highways England smart motorways project and the MoJ prison estate transformation, that some of these things are being unlocked. They have started to step into the space and demonstrate how this will work. On the back of the Autumn Statement, there is a piece of work looking at how to take what the MoJ and Highways England have learned and spread it more evenly across other departments.
Highways England has a load of learning that is potentially useful for Crossrail 2, HS2 and HS3, so we are starting to see some of the big infrastructure clients talking together more. The same thing is happening with the MoJ talking to the DIO, so there is some cross-fertilisation. It is helpful that clients are starting to self-reinforce. If they see someone else doing it and they can share in that learning, it gives them confidence and you can accelerate the pace of learning. Rather than lots of people learning the same thing individually in silos, we are beginning to see more sharing. The more we can open-source that learning and make it more available, the more clients will get some confidence and begin to contribute to the journey.
Lord Kakkar: Beyond the Government being an important client, could something be done by way of legislation that would give more confidence to clients and therefore beyond them more broadly to the construction industry and the participants who have to deliver this, or is that not necessary?
Jaimie Johnston: I do not know if it is necessary. We have struggled with this internally, because at the moment I am not sure what you could actually mandate. The term “off-site”, for instance, is so broad that it would be hard to put legislation in place. The measurement of what is off-site value versus what is on-site value is still very vague, so there is not enough definition or articulation of what we mean by “off-site” to put something in place to measure people against.
The Infrastructure and Projects Authority is keen on building up some benchmark data that would start to drive these behaviours. There will probably be a legislative route over the long term, but at the moment it is so vague that it would be hard to write anything that could be enforced.
Jane Richards: I would add that the Government have indicated that they are expecting off-site to be a significant component of projects by 2019, which is not far away. There are also some massive regeneration projects in hand, such as 11,000 homes in Barking Riverside. Rather than putting legislation in place, some real incentives could be built into the procurement strategies for delivering such projects so that they automatically leave a legacy that is of benefit to local communities. Off-site is an obvious way to do that.
Q34 Lord Fox: In our discussion about integrated teams, we seemed to be conflating two things. There are benefits from having integrated teams and there are benefits from off-site manufacture. Are you suggesting that we cannot have effective off-site manufacture unless we have integrated teams, or are they two separate benefits? Could you have the current fragmented model and still have effective off-site manufacture? Which is the chicken and which is the egg in this discussion?
Jaimie Johnston: My view is that you must have integrated teams to make this work. You will not do it until you have sharing of knowledge. I do not know if Jane agrees.
Jane Richards: Let us look at how it is being done at the moment. We have some pioneers who are making off-site work, so we need to harness some of that. Getting the benefit of the cross-fertilisation of off-site, technology and all that goes with it would be a good step. The integrated team works well and we all have experience of that, but every project being done in that way would be going a bit far.
Lord Fox: Coming back to the point made by Lord Kakkar, are there things that we can do in risk management that would encourage the sort of thing that would deliver those teams? Are there legislative things that could change risk management and insurance?
Andrew Morris: Taking a lead from the terminal 5 project, let us look at how consultants take out insurance in this country. We work internationally, and quite often we find that in major projects clients are quite happy and prepared to take out project insurance, which is a single policy that covers the whole of the project. It means that individual consultants do not have to take out their own insurance. The simple act of doing that draws you together, because you are then focused on the task at hand.
So I would have thought that in any public project, if the Government, or whoever is actioning it, are seen as an exemplar client, they could say simply, “All public projects will be covered by project insurance”, and it would take the risk away from the individuals and unite the group. You do not then spend half your time trying to protect yourselves and you can focus absolutely on the job at hand.
Jane Richards: I think you could go further than that. I am not advocating this, but we have had Chinese contractors approach us because they have been mandated by their Government to make a certain percentage of their residential development using modular off-site technology. While I do not think there would be any reason to do that, the approach could be taken that when a very large public regeneration project is being procured, and particularly where there could be a legacy benefit, it could be part of the procurement. Something would be delivered with these outcomes in mind, and one of those could be an off-site manufacturing legacy offer.
Coming back to the original question, there is a beneficial outcome to be had if we put our minds to it.
Baroness Young of Old Scone: Lord Vallance has talked about leadership. It seems to me that this could grow organically, with lots of people doing little bits here, there and everywhere, or is there a burning platform that is going to drive it? If so, what would that be? Why does the efficiency case, for example, not drive it fast? People say that there are benefits in the sheer efficiency of this form of construction.
Andrew Morris: You are dealing with many individual vested interests. As I say, the industry is not a homogeneous sector. Rather, we should look at it as a series of silos that have developed over the years. They have their own methodologies and business models. Something that would work for a commercial building in the City of London might be totally inappropriate for a domestic residential project. You have to look at each of those sectors and ask what can be done to achieve the overall goal of off-site manufacture, which is higher quality in the end product and a shorter period of time. There are better whole-life costings, so it would be a better asset to invest in. That should then be tailored for the various silos.
In the residential market, which is obviously dominated by the big housebuilders, there are a couple of pioneers. Jaimie has already mentioned that the Berkeley Group is already experimenting with how it could introduce off-site into its tried and tested method of building houses—hand-crafted, if you like. However, the majority still abide by their own traditional ways, because they do not see the benefit for them in their business models of additional quality and whole-life costing. In essence, they are building to sell and they have no involvement once they have sold the asset. It is about engaging the investor in seeing the benefit over the long term and thus drawing them into delivering the end product in some way.
Baroness Morgan of Huyton: Miss Richards has touched on the exact point I wanted to raise. You said that you “would not recommend it, but—“. Why would we not recommend off-site for a large development? It is probably too late for Ebbsfleet, but wherever the next Ebbsfleet is, why would it not be sensible for the Government to say, “Here’s the deal”? We want to push productivity in the construction sector. Rather than just having publicly-funded prisons, why can we not say, “In this area of regeneration, this is what we want to see being done differently”?
Jane Richards: That is exactly where I can see that it would be applicable. I would not recommend the Chinese approach where an arbitrary percentage is set and you say, “In the future, you will use X amount of off-site on all residential projects”. That is too broad, but it can be tailored to a really good example of where it can be delivered.
Baroness Morgan of Huyton: Because you can demonstrate the impact of it.
Jane Richards: Yes, that is right. There is a capacity issue and if used too broadly you could create problems. We need to focus on good outcomes.
Lord Griffiths of Fforestfach: I want to go back to the point raised by Lord Kakkar. He asked whether we need legislation from the Government. Our previous inquiry was on the industrial strategy. Ministers seem to be quite proud of what the industrial strategy has done in the life sciences area as well as in the construction sector. Given the success of GlaxoSmithKline and BAA as champions of this approach, do you think that through the industrial strategy the Government could do anything in relation to the construction industry that would bring people together in a sort of clearing house for ideas and the promotion of this approach?
Jaimie Johnston: The first competition that has come out is for an innovation hub, which presumably will become the focus for all these things to come together. That is a massively positive step. As we have said, there are lots of individual good pieces of work going on in little pockets. The idea of having the hub as a sort of clearing house to bring all this together and to start cross-fertilising would be beneficial in accelerating everyone’s journey.
At the moment, there seems to be a massive duplication of effort in different pockets. During the 1960s, American automotive made a huge collaborative effort. If we do not start to share best practice and socialise some of what we are doing, we are dead anyway. American automotive started to share at a certain level and said that it would be very cutthroat about carving up the industry after the fact, but it did everything that it could to maximise the size of the industry before then deciding what to do with it.
The hub should be a massive step forward in giving everyone a repository for this knowledge and a place to access it. As we said earlier, as soon as you start lowering the barriers to entry so that people can get their hands on this stuff more quickly, that will accelerate everyone’s journey. For a first competition, it is a really good starting place.
Q35 Lord Borwick: Can I ask about the business models in the construction industry, specifically the finance side of it? If you take something like a housing estate and compare conventional construction with off-site construction, whose cash flow changes in which way? Does the client’s cash flow change even in a big development like an office or student accommodation? Does the main contractor’s cash flow change as a result of moving to off-site construction?
Andrew Morris: Yes, it does, because if off-site construction is to succeed, it requires a much greater investment in the design up front. Traditionally, because funding a major project is normally split into two halves, you will find that there is a funding profile and a cash flow profile for the early conception work that normally terminates in a planning application and planning consent.
Once that consent is granted, a long-term funder usually comes in who funds the construction going forward. But that causes a problem, because the long-term funder will normally invest only once he has someone to transfer his financial risk to.
Lord Borwick: For the security, I presume.
Andrew Morris: Yes, for security. The only person who can carry that risk, who has a balance sheet that is big enough, is normally the contractor. But he is being asked to take that financial risk at a premature stage of the design—the design has not been completed, so there is a lot of guesswork involved—and unless that guess contains a lot of contingency, the likelihood is that the outturn cost is not going to end up anywhere close.
That is the conundrum that you have. With off-site manufacture you are prepared to invest in design and you take the design process much further forward. You prototype, you test, you get predictability and greater certainty, which means that the cash flow is front-loaded to deal with the design process. You then have a much shorter period on site, which means that the cash flow is far lower.
Having said that, I come back to my original point on procurement. You have a completely different procurement model, because buildings are normally paid for by product, materials and workmanship on site as evidenced and signed off. But if all your work is actually off-site, you have to deal with paying the people who are putting it all together and making sure that the ownership is sorted out—who actually owns the product if the contractor goes bust—so you have a completely different arrangement. Provided that you can get all that sorted out, and there is no reason why you cannot—
The Chairman: I am afraid that a Division has been called and we will have to suspend the session for 15 minutes.
The Committee suspended for a Division in the House.
The Chairman: Please accept our apologies for the interruption. Not all members of the Committee have returned, but we should nevertheless resume. I think that Lord Borwick had asked a question and Lord Fox wants to follow up on it. I am sorry. Please continue, Mr Morris.
Andrew Morris: Your question was about finance and cash flow. The simple answer is that, yes, off-site manufacture involves a necessary investment in design up front. That skews the cash flow, so you have to be prepared to invest, but of course the payback comes from the less time that has to be spent on-site, and thus the cash flow is eased at that point.
Lord Borwick: So your analysis is that it is sharper and earlier.
Andrew Morris: That is correct. As I was explaining, that can create a problem certainly for commercial projects, because long-term construction finance does not normally appear until there is planning consent and a degree of certainty about the concept. It is not normally the same person who invests at the front end, so there is a temptation to reduce the amount of investment at the front end to get to the point where you can start investing in the long-term construction. But of course that requires a transfer of financial risk from the long-term investor to the contractor. He then needs to make up his mind on his promise based on immature design information.
So you already have a conundrum, which leads inevitably to cost overruns, which is one of the major problems. That is because whoever set the budget to start off with and then committed his organisation to achieve that had to do so on incomplete design information. That is one thing that off-site manufacture helps to alleviate.
Jane Richards: I concur with Andrew. There is a huge investment in off-site technology at the front end, and obviously the payback comes through in each project after that. Only so many organisations can actually take on that level of investment, which is one of the big drawbacks.
The Chairman: That is the point that you made at the outset about the continuity of the pipeline being so crucial.
Jaimie Johnston: There is only one thing I would add to that. I referred earlier to benchmarking. There is lots of existing benchmark data for traditional construction, so people can build up a cost plan based on relatively immature information. In the off-site space, because people do not have the benchmark data to rely on they find it very hard to promise it. While we as professionals believe that it would demonstrate cost benefits, when trying to get someone to price it they will lump in a load of the risk for the things they do not know, so at the costing stage the benefits are often not properly priced.
That is a difficulty that we run into quite a lot. You know it will be cheaper, but you cannot get someone to price it accurately at that stage. I think that will change as we begin to get more benchmark data from these projects, but at this moment it is a question of the immaturity of the market.
The Chairman: Who should be responsible for getting that data?
Jaimie Johnston: More people can start to publish the benefits. However, if some clients knew that they were demonstrating cost savings, they would not necessarily tell everyone that. If contractors knew that they were delivering things more cheaply, they would not necessarily publish that because they would try to keep the benefit. So, again, the clients’ forum, the joint working group on modern methods of construction within government, can start to document the benchmark data.
The Infrastructure and Projects Authority is leading on this and wants to build up its benchmarking case studies and publish them. The more we publish these things, the more people will start to understand them. That is exactly what happened with BIM; early adopters started to publish case studies of projects where it had saved time and effort through reduced reworking.
Lord Borwick: Cash flow that demands cash much earlier and that increases the risk on that cash flow is probably sufficient to slow the introduction of an otherwise bright idea. Is that correct: that the cash flow alone would be enough to cause what we are seeing, which is a slow take-up of an otherwise good idea?
Jane Richards: Yes, I think so—and this comes back to my first point. Given that, it is surprising how much advance we have had in off-site. That tells us that there must be huge benefits to it despite that. We all agree that we are at a point with off-site construction generally where there is real momentum. It is no longer seen to be completely high risk and abnormal. It is starting to become more mainstream. There is a real momentum to it now.
Q36 Lord Hunt of Chesterton: One thing that I am trying to work out is to what extent the methods used by the different companies or groups are secret. To what extent are the Government, the Building Research Establishment or whatever establishing methodologies that will be common across the industry? I would be interested to know whether there is more common practice in other countries. The impression that I have had from you is that it is all still quite secretive in the UK. The role of the BRE or any government body does not seem to be to enforce openness.
Jane Richards: You asked me that question earlier. There is much more secrecy in the private sector, because obviously the investment that we have just been talking about is an individual company’s. We are tied to contracts where we cannot share the information. Laing O’Rourke, to which you are talking in your next session, recently published quite a large body of research that it had done on accreditation and design coding to get some commonality across the industry. It has published that research for all to use. It sees that everyone’s gain is its gain. The more this gathers momentum, and the more people are using the same information rather than having to spend a lot of effort developing their own equivalents, the more everyone will benefit.
Lord Hunt of Chesterton: Are the Government pushing that? Is it on their agenda?
Jane Richards: It is in the hub that Jaimie mentioned, but I think that more could be done. This would be quite a small thing, but if we could encourage a way of sharing and disseminating that type of information, that would be useful for everyone.
Jaimie Johnston: One thing that we had written into the contracts on the Ministry of Justice’s prison estates transformation was that any IP that we generate immediately goes to the Crown for use in perpetuity for any purpose whatever. Rather than trying to secure that IP for ourselves, we are saying that the benefit comes when more people start to adopt this. We have put out a number of publications over the last year or so.
Lord Hunt of Chesterton: Sorry, but who is “we”?
Jaimie Johnston: Anything that Bryden Wood has done in the public sector, we have documented and published via the Cambridge Centre for Digital Built Britain. We have been trying to publish our workflows and the outcomes of the things that we have done. We are ensuring that any IP that we generate on public sector projects is then documented and owned by the Crown, whether it is for the Ministry of Justice or Highways England. We recognise that the more we can open-source the things that we can do, the more uptake will increase. There are quite a few people who would not necessarily have the skill set to develop something from scratch but who could certainly contribute to or build on something that is already available. We see that as the way in which we will start to lower the barrier to entry.
Lord Hunt of Chesterton: Would it be helpful if this Committee endorsed that in some sense?
Jaimie Johnston: Yes, absolutely.
Jane Richards: We ought not to generalise too much. Some developers are very much of that mindset and can see the benefits. Even in my Unite days, it allowed us to publish a technical paper—I co-authored one on modular design in high-rise buildings. There are pockets of this, but it is very ad hoc. Something that made that more general would be advantageous for everyone.
Jaimie Johnston: If you build that into public sector procurement and say that the rule applies that all IP generated for public sector procurement becomes public, you will start to see a massive uptake and a huge contribution of people building on these things.
Lord Hunt of Chesterton: Is that being done in other European countries?
Jaimie Johnston: I do not know whether anyone has tried that.
Andrew Morris: Our experience working around the world is that our industry, although I have denigrated it, is quite sophisticated compared to the industry in some other places. In North America, in both Canada and the United States, the process is much more industrialised and standardised, but it concentrates on design. It is where we were 30 years ago. People do not start constructing until they have a fair amount of design done. Germany is exactly the same—again, a lot of the design is done before people commit to construction.
They are nowhere near as sophisticated as our industry is. Our industry can still respond to whatever is thrown at it. As long as you can provide a procurement strategy to deliver it, it normally does it excellently. Our experience around the rest of the world is that you are shaped by the industry, so you have to fit in very much to the product that it is offering. I think the reverse is the case in the UK.
Q37 Baroness Neville-Jones: I should just say that I have no interests to declare in connection with this inquiry. The point that you have just made is what I wanted to ask about.
From what you have said, it sounds as though there is considerable consolidation in the industry, so you get less variety. Presumably, it is harder for the minnows to compete with the big boys supplying big integrated projects. Is that a risk? I can see that the need for capital up front and for sorting out risk as a barrier to getting the thing going, but I wonder whether down the road there is a downside in extensive consolidation of a kind that narrows choice and makes it hard for small companies to grow and to get in the game.
Andrew Morris: There does not have to be. All the discussion that we have had this afternoon, based on our experience, has been on large-scale projects. We are working with Lewisham Council at the moment on a small residential pop-up, as it is called.
Baroness Neville-Jones: That is what I wondered. You get reduced to being in the small game rather than the big game.
Andrew Morris: It is 24 units, low-cost—less than £5 million—and 95% of the project is off-site manufactured. The work that we have done for Lewisham Council is on a modular, volumetric system. It is low-tech; it is a timber-based system. The idea will be that, rather than having to regionalise the assembly points, wherever you have the housing project you can utilise local labour and materials at a low-key level in a modular off-site manner. We think that has great advantages. Yes, at the other end of the scale you have the Laing O’Rourkes and so forth, which are dealing with large commercial projects and are therefore investing in a different way, but at the other end of the scale, off-site manufacture gives plenty of opportunity to diversify or regionalise the production, especially in the residential market.
Baroness Neville-Jones: It sounds as though the industry would end up being differently structured. I still ask the question, though. Some of the giants started as pretty humble construction companies. Will that continue to be the case, or will you get a layering of the industry such that you have the big boys, you have people who do local stuff and so on?
Andrew Morris: I think you will always have those. Tom Bloxham, the developer who started Urban Splash, which you may have heard of, concentrated a lot of his work in Manchester and specialised in developing in that area. He has recently started up his own construction company based on prefabricated modular units. Because the industry is divided into so many sectors, there will always be opportunity, not so much in the big sector, where you need big investment and lots of bodies, but in the small sector.
Especially now, with the new technological innovations in computing—BIM and 3D printing—manufacturing and technology have never been easier to put together. That spills over into the skills that one can attract. It becomes more attractive for younger people, because it is more technology based. There is every opportunity, through aligning off-site manufacturing with technology, to start to diversify in Britain.
Baroness Neville-Jones: You see no real danger of an anti-competitive situation arising—of a very, very small number of companies competing.
Jaimie Johnston: We are now designing buildings at a much more component level. They are manufactured components rather than things that are made by skilled craftsmen on-site. We are seeing a much more diverse supply chain, because suddenly you are not looking at buying systems from very specialist people, you are looking for individual components, and the supply chain for those is very broad and very wide.
As Andrew says, you can then procure things much more locally. We have demonstrated the skills required to assemble things in a number of projects now. You can start to engage a much more diverse workforce, so rather than needing skilled craftsmen—Jaguar Land Rover cars, for example, are made by people who have been trained in specific tasks—you can take a whole range of people who would not traditionally think of entering construction, be it people returning to work or apprentices, and suddenly your supply chain and labour force gets very diverse and very broad.
So I do not think we will see a consolidation. I suspect that we will see much more distribution. In projects such as Heathrow—a massive piece of infrastructure in the south-east—they are very deliberately trying to spread the economic benefits out into the regions. They want to spread that benefit. I think we will start to see more of that happening—potentially building up quite a distributed network of manufacturing capability. You can procure things much more locally, you can engage a much more local and diverse workforce, and I think we will start to see huge diversification in the industry.
Jane Richards: That is a really good point. In a way, off-site suffers from being so broad, and we sometimes talk about the really big high-investment volumetric modular or the Steetley factory, which I know you are visiting. It is actually about components being made off-site. That can be taken to quite a granular level, and it can still bring benefits to the overall construction process.
Baroness Neville-Jones: That sounds less integrated, if I may say so. The answer to Lord Fox’s question about whether you need integrated teams was yes. Now we are hearing that you can have diversification. I am very unclear which it is.
Lord Fox: And why would the sourcing necessarily be local for the simple components? Look at how the aerospace industry drives costs. Let us say you have a universal tap. You would not buy it in this country; you would buy it from India. What drives local sourcing? On the contrary, once you have standardisation, that drives international sourcing, not local sourcing.
Jaimie Johnston: It gives you the choice. With the MoJ we are starting to look at standard components that can be used in multiple building types. If you can use a component that is good for schools as well as healthcare and residential, you can start to build up the numbers that you need, which you gets into the manufactured space—
Lord Fox: I get that.
Jaimie Johnston: —and then you can decide where to procure it.
Lord Fox: You said that this allows local procurement. On the contrary, it absolutely makes international sourcing much more economic and the route that people are far more likely to take, surely.
Jaimie Johnston: You could buy things internationally.
Lord Fox: You can buy things cheaper internationally.
Jaimie Johnston: For the first iteration of some of the components that we devised, we had them fabricated fairly manually from small local fabricators. For the next iteration, we found a company that did CNC cutting, and the cost immediately plummeted. If was a case of, “I can make those a lot more cheaply using technology that is available”. For the third iteration, they get cheaper again, because that local person says, “If you made the component slightly differently, it would be even easier”.
We are starting to find that we can design towards specific bits of the supply chain. Once you have designed and optimised those, you say, “Right, let’s buy them from anywhere that has the capability to contribute”. We are seeing that rather than buying millions of them from China and paying to ship them, you can buy 100,000 from lots of small local companies very, very close to where you are using them. If you are using standard components that get used across the entire country, you can decide to procure them. They have already been optimised and designed towards a manufacturing approach, so it becomes really sensible to buy them quite close to where you need them, using local skills and local people.
My guess is that if we decided to, we could use that to put more investment into UK manufacturing and bring up the entire manufacturing base of the UK, rather than send that investment across the world.
Lord Fox: But that would be a political decision rather an economic decision.
Jaimie Johnston: There is some thinking that suggests that we are past peak globalisation. For years, the narrative was that everything was heading out to Asia, because the cost base of doing it out there was cheaper. China in particular has more of an ageing demographic problem than we have.
Lord Fox: That is why I chose India.
Jaimie Johnston: Okay, but the same thing will happen: you will start to see a rising middle class, so the cost differential in labour will start to decrease. In additive manufacturing—automation, robots—the cost of a robot is pretty similar all over the world. We are starting to see reshoring in the States, where companies that would traditionally have sent things to China and elsewhere in Asia are bringing them back into the US, because the cost differential no longer stacks up.
Lord Fox: There are a lot of different dynamics.
Q38 Lord Kakkar: My question was asked earlier, but I have one further point to make, if I may.
In terms of all the intellectual property that might be generated from the technological and digital solutions that you described earlier, how important is it that the Government have a strategy to keep the development of the peripheral businesses that hold that technology and that IP in the UK, or does it not matter if they are taken, invested in and developed abroad?
Jaimie Johnston: I think they should be taking steps. I am not sure that that has been thought about yet, because the thinking on some of the initial public sector programmes is only just emerging. One of the Construction 2025 targets was to massively increase exports, so you could tackle that export question by sending the processes and the IP out and procuring abroad. I do not think that anyone quite knows yet.
I agree that government should have a strategy for this. If it starts to accumulate this IP, it should work out what to do with it before it goes too open source too quickly and it loses its ability to exploit that in some way.
Jane Richards: The IP needs to be protected for the very specific details that create the competitive edge for manufacturers who are investing in the R&D. From my experience in the private sector, that is one reason why there is so much secrecy around it. The technology for off-site construction is quite simple. The methodology for construction is simple by its very nature. That is what you are designing it to be: very simple, very standardised, very able to be repeated and easy to use.
In a way, that is the dilemma with it: you are trying to protect something that is very easy to copy and very simple. You have made it simple. All the tooling and some of the digital technology that goes with the production can be more complex, but what you build is quite simple. That is why people are so protective of it at the moment, and any assistance that can be given to enforce IP so that it can be used but not copied will obviously benefit the people who are investing.
Andrew Morris: It depends what you mean by IP. There is a lot of intellectual property in the actual conception of the product: how it looks, what it feels like, what it has to do. Being an architect I am sensitive to that. Giving that away is like giving the Crown jewels away. But one understands that when you are involved in public procurement, or even in projects such as terminal 5 with BAA, there comes a point where the project is so large that you have to vest that IP with somebody else.
When it comes to IP in relation to process—how you take that conception, put it together and the processes that you use—there is not so much of a problem, because a lot of how that is done is common knowledge. The use of BIM and 3D printing, and a lot of the process of applying that knowledge to deliver and manufacture a component, is now fairly standard.
One needs to differentiate between what you actually want to save and become part of the public realm and what you are quite happy to share and give away.
Q39 Baroness Morgan of Huyton: It would be really helpful if you read the transcript of what you have just said about IP and what you said earlier about open source, because I think we have heard some very contradictory stuff—even, with respect, from your own mouths. I can understand why, because it is a complicated issue and it is hard to differentiate exactly what we mean, but clarity would be helpful to us. I am sure it will help if you read what you have said and perhaps send in to us your further thoughts.[1]
On skills—by all means answer this question briefly, because I suspect we know broadly where you are on it—it is clear that there is already a shortage of skills on-site and that it is likely to get worse because of an ageing construction population and a falling EU workforce, so we know that there is already a problem. How do we manage the existing construction industry while reskilling to meet the quite dramatic changes of the future world? Also, do you accept that the skills base needs to change?
Jaimie Johnston: My personal view is that the existing industry will carry on doing what it is doing while this new and emerging industry begins to take over. I do not think there is an issue with having to reskill the people we already have. It will be about engaging a completely new set of people and bringing them into the industry. While the skills gap of the ageing population tapers off, it will be replaced by this new and emerging industry.
Jane Richards: I think you alluded to this earlier, but my experience, particularly going back to the Unite Group and its factory in Stroud in Gloucestershire, was that the staff came from the local workforce. The skills needed for off-site technology tend to be different but less when compared with the traditional trades on-site. You can really impact on a local area when something like that factory is set up. It does not take as long to skill people up to deliver the product, because it is a factory process and thus does not require the level of trade skills that an apprentice approach would typically mean.
Baroness Morgan of Huyton: Presumably there is a requirement for a higher level of digital skills that are not necessarily in place at the moment.
Jane Richards: That is becoming part and parcel of our industry anyway. It is the world we are in now.
Andrew Morris: I was going to make the point that Jane has just made. When we look at manufacturing today, it is quite common for the drawings of bridges that we produce almost to be the drawings that go into the patterning machines, and you direct it from there. There is already a lot of technology that goes into it. Once we start to move into the other realm of 3D printing and the next generation of manufacturing, you then start to look at reskilling.
At the moment, what we make off-site is in essence what they make on-site but in a much cleaner and more controlled environment. You are still welding, bolting, bending tin, cutting timber and screwing things together, but it is being done in a much healthier and safer environment.
The Chairman: Baroness Neville-Jones, you have a question about architectural ambition and standardisation.
Q40 Baroness Neville-Jones: From what we have heard, if the industry develops in the way I think you would like to see, with much greater integration of the process, that seems likely to lead to quite a lot of competition on price, which I suspect can lead to some pretty boring buildings. How do you keep architectural ambition and design alive under those pressures and when your client wants a deal on the cost of the building?
Andrew Morris: I will refer to the Leadenhall building, which I mentioned in my introduction. It is probably better known as the Cheesegrater in London. It is a classic example of off-site manufacture with 83% of the building having been made off-site. Laing O’Rourke was the main contractor. In fact, we could have done a lot better, because the journey of that building was of two halves. It started off under one procurement regime, stopped, and was then picked up again.
If we had started from the beginning as we ended, directed at off-site, we could have improved. That building saved six months off the building site contract and saved 7% of the actual construction cost, and the time that was saved at the back end enabled the building to be let more quickly. KPMG worked out that it added something like £29 million of value for the client because of the rental stream coming in early. In 2015-16, that building was voted by BCI as the best office building in the UK. I make these points to show that we as a practice do not see off-site manufacture as a restraint on design and creativity.
At the other end of the scale, there is a perfect opportunity in the low-cost housing market to use the design talent that is pre-eminent in the UK. It is the one thing that we have in abundance—we probably have too many architects if we are looking at it from the competition front. The constraints that we are talking about are more the integration of knowledge and of data, working with the people who are going to make the components and learning from them, letting the delivery of the product influence the concept of the product, and keeping the circle turning.
As we have proved as a practice, we think there is every opportunity here. Even with the first building I worked on, which was the Lloyd’s building for the insurance institution, a good proportion of it was made off-site, and that was more than 30 years ago. All the concrete columns and the toilet pods that could be fitted in were manufactured off-site all that time ago.
We believe as a practice that it should not stifle creativity. It gives the conceptor and the designer an opportunity to work with the deliverer and the people who are going to do the manufacture, which can only help the quality and functionality. We will still be able to express a great aesthetic object.
Baroness Neville-Jones: You do not see a danger of having a lot of boring buildings being punctuated by the odd outstanding one.
Andrew Morris: If there is, I would ask that you look around you now.
Baroness Neville-Jones: That is exactly what I see.
Andrew Morris: It is already the case, and a lot of lessons can be learned by going off-site, perhaps improving on what we currently have.
Jaimie Johnston: Can I build on that, because it is an important point? My view is that if we do not embrace this technology, we are more likely to see a dumbing down of design. The IPA has talked about a £600 million pipeline, while the UN states that 2.5 billion more people will be living in cities by 2050. That is the scale of the design challenge we are facing.
If we do not adopt these technologies, we will end up with poor design, because no one will have the time to do it properly. A much more positive take on this is the fact that throughout history every new architectural movement is a response to some form of technology. Tall buildings could not exist until steel could be treated in a particular way, and then lifts had to be invented.
Andrew Morris: The elevator was the key development.
Jaimie Johnston: Yes, and there is an interesting point in this. Architects are good at dealing with and being constructive within constraints. We are looking at a really interesting space and we are potentially looking at a new form of architecture. That is because we can embrace these tools and understand the manufacturing process. We are finding that things like BIM, because it documents a building quickly, give us more time at the front end to do the proper design exploration and understand more design options.
There is the potential for a really positive space where we will start to develop a new form of architecture that understands these tools and uses these methods of manufacture. There is a whole generation of eight to 12 year-olds who are playing Minecraft and who are designing all sorts of interesting things using standard components and co-creating within a 3D space. If we do not get this right, there is a whole generation who will not come into construction, but if we do, we will pick up this technology and do things with it that we would never have conceived.
Jane Richards: Those two answers have covered the point. All I would say to counter the argument slightly is this: If we go back in history and look at our residential housing, a lot of our Georgian and Victorian development arose from a pattern-book approach and is none the worse for that. We just need good design, and linking that with the new technologies that we have been talking about does not need to be a negative. We need to force that through and make sure that we get good design.
The Chairman: Thank you all very much for coming to speak to us. You have been excellent witnesses and we really appreciate that. I must apologise again for the disruption earlier.
