Off-site manufacture for construction: Building for change Contents

Chapter 6: Government actions to overcome barriers

121.The Government, and the wider public sector, is the biggest client of the construction sector. The evidence showed that the Government has an important role in encouraging and facilitating the uptake of off-site manufacture. Andrew Wolstenholme explained off-site manufacture “will not happen across the whole of the sector unless the public sector, which by a country mile is the largest construction client, understands the part it has to play”.132 In Box 8 we summarise some of the levers available to Government to encourage off-site manufacture and in this chapter we discuss in more detail the actions the Government is taking and what further steps it needs to take.

Box 8: Levers available to Government

Mandating: The Government can mandate the use of certain techniques or technologies in construction projects, for example the requirement that Building Information Modelling (BIM) level 2 is used.

Procurement Frameworks: Frameworks for procurement such as those drawn up by the Crown Commercial Service can be designed in such a way to make it easier, or encourage, public sector clients to use off-site manufacture. There is also a role for the Infrastructure and Projects Authority (IPA) in drawing up procurement frameworks for government.

Funding conditions: The Government can put conditions on funding provided for construction projects. For example, funding provided by Homes England to Housing Associations could require a certain proportion of houses to be built using off-site manufacture.

Sharing knowledge and expertise: The Government can share knowledge and expertise about off-site manufacture with other public-sector clients.

Regulation: The Government or other regulators (such as those for utilities) could use regulatory requirements to encourage a move towards off-site manufacture.

Research funding: The Government can provide research funding for new technologies, such as those used in off-site manufacture.

Construction Sector Deal

122.The Government announced the Construction Sector Deal in November 2017 as part of its Industrial Strategy white paper.133 The Sector Deal was published on 5 July 2018.134 Andrew Wolstenholme explained that it “is the catalyst that is going to unlock much of the intent and the opportunity” of off-site manufacturing.135 Mark Reynolds, Chief Executive of Mace, explained that the “Sector Deal is really important to the construction and infrastructure industry”.136

123.The Construction Sector Deal is an important step forward for off-site manufacture and the wider construction sector. It is important that the Government and the Construction Leadership Council work together with the sector to make sure the Sector Deal is a success. The CLC must draw up a detailed implementation plan containing a timetable, objectives and metrics as soon as possible and hold those responsible for delivering the Sector Deal to account. This is particularly important considering the sector’s problems with collaborating and working together in the past.

Digital agenda

124.Digital technology is an important enabler of off-site manufacture. Mott MacDonald explained:

“Digital and process maturity is required to help unlock the broader benefits of off-site manufacture. A main strand of this is end-to-end digital delivery, without which off-site manufacture is often more challenging due to slower, less reliable information and fragmentation of the project team.”137

125.The focus of digital technology in construction is on building information modelling (BIM). BIM uses 3D models of a building or other built asset and a common data environment to access and share information across the supply chain. It can help the entire supply chain to work from a single source of information, reducing the risk of error. Mark Enzer told us that it is “difficult to imagine an efficient approach to off-site manufacture that does not use information modelling … information ends up being the golden thread that joins up the overall delivery process”.138 Dr Robert Hairstans told us that BIM “moves construction towards increased levels of digitisation and creates a platform for improved levels of project and supply chain communication horizontally and vertically thus facilitating collaboration”.139

126.The Government’s 2011 Construction Strategy defined four levels of BIM:

127.Since April 2016 the Government has mandated that BIM level 2 must be used for all public procured construction projects as set out in its Government Construction Strategy 2016–2020.141 The mandate has driven change in the sector. Dr Mark Bew told us that “we are not seeing any other nation doing massively better than us [at using data] at the moment”.142

128.NBS, part of the knowledge management business of the Royal Institute of British Architects, carries out an annual survey of BIM adoption and usage in the construction industry. In its 2017 report, NBS National BIM Report 2017,143 it found that BIM awareness is near-universal and 62% of construction companies were using BIM on some projects.

129.However, 51% of respondents thought that the Government was failing to enforce its BIM mandate and 37% were not clear what they needed to do to comply with the mandate. The survey also found that a majority described themselves as confident that they had the required skills and knowledge to use BIM (a proportion that has steadily increased in recent years).144

130.We recommend that the Government provides companies who want to bid for Government contracts with the information they need to comply with the BIM mandate. It is important that the Government enforces the mandate, as it is a significant enabler for off-site manufacture.

Presumption in favour of off-site manufacture

131.Any changes the Government and other public-sector organisations make to procurement processes for construction projects are likely to affect how the construction sector works. Andrew Wolstenholme argued that the “market responds by the client asking some pretty bold questions” so public-sector clients should “put down some very strong indicators about the percentage of manufacture they would like off-site”.145 Professor Jeremy Watson said, however, that even if the Government procures against certain requirements, there is little evidence that the private sector will follow.146

132.In the November 2017 Budget the Chancellor announced a “presumption in favour” of off-site construction by 2019 across suitable capital programmes, where it represents best value for money. The presumption in favour will apply to five Government departments: the Department for Transport, the Department of Health and Social Care, the Department for Education, the Ministry of Justice and the Ministry of Defence.147

133.Tony Meggs explained that the presumption in favour means that the five departments will work together, with the Infrastructure and Projects Authority, through a working group. All projects should have “at least one option that includes the substantial use of off-site manufacture” during the option development stage. Mr Meggs went on to say that how that requirement works in practice is “yet to be seen”, but that the presumption would lead to “aggregation of demand across those departments” and that “it sends a signal to industry that we are serious” about off-site manufacture.148

134.The Minister told us:

“I thought that the presumption in favour did not actually mean very much, but it is a pledge that, from next year, for every built asset that these five departments contract there is a presumption in favour of it being made in a factory rather than on the building site in the traditional way. That does not bind them absolutely, because some buildings just would not be suitable for it, but it is possible for many.”149

135.We recommend that the Government develop and publish a series of Key Performance Indicators against which the success of the “presumption in favour” can be assessed. Furthermore, where the presumption in favour is set aside and a project goes ahead that does not use off-site manufacture, the Government should publish a statement explaining why it has not been used and justifying that decision.

Ensuring a pipeline of projects

136.In Chapter 5 we discussed how the lack of a consistent pipeline was a barrier to wider use of off-site manufacture. Andrew Wolstenholme told us that “the Government have to understand the value of a consistent pipeline”.150 However, the CPA told us that the “track record of the National Infrastructure and Construction Pipeline to date has seen significant delays in funding for a number of projects” and that this does not provide the industry with the confidence to invest in off-site manufacture.151

137.David Hurcomb argued that the lack of a clear Government pipeline meant that innovation and learning in the construction sector is lost:

“Where you have seen innovation in this industry, it is through large government programmes … because the supply chain gets good at doing stuff and you start to see that benefit. The problem is that as these programmes come to an end, some of that innovation gets lost.”152

He thought that the Government needs to trust the industry more and provide frameworks that give longer-term certainty to allow for investment.153

138.The CPA told us that “take-up of offsite will only occur en masse with consistent, coherent Government policy given that the public-sector accounts for one-quarter of total construction output”.154 Constructing Excellence said that the Government’s ‘presumption in favour’ is “a very welcome intervention” to help achieve a pipeline of repeatable projects.155

139.Some progress has been made by the Government on a consistent pipeline. For example, the Department of Transport has designated ring-fenced funds for Highways England over a six-year period from 2015 to 2021.156 The Government has also committed to “take forward the public-sector investment set out in the National Infrastructure and Construction Pipeline” in the Construction Sector Deal.157

140.We recommend that the Government, using the levers we set out in Box 8, provides a steady pipeline of projects for the construction sector so that companies can plan and make the capital investments necessary for off-site manufacture. We welcome the Government’s commitment to the National Infrastructure and Construction Pipeline in the Construction Sector Deal. It is important that the Government adheres to the pipeline to provide certainty to the sector. The ‘presumption in favour’, if properly executed, will also help to do this.

Procuring for value

141.Witnesses described how changes to public procurement criteria could help to increase the use of off-site manufacture. Of benefit would be procuring for value rather than lowest cost. This means considering the whole life cost of an asset—including improved safety and environmental performance of buildings and infrastructure—rather than just the initial capital cost. This may mean a larger initial cost but should lead to higher quality assets that cost less to run and maintain. Consequently, the lifetime cost should be less.

142.Procurement processes could also take account of externalities that do not directly affect the cost of an asset but which could provide environmental and societal benefits. Externalities include the health and safety of the construction workforce and the final users of the building or infrastructure, reduction of noise pollution and dust caused by working on a construction site, minimisation of waste, and the environmental performance and energy use of the building or infrastructure. Trowers and Hamlins LLP promoted this approach, and recommended that public procurement should “emphasise the social value benefits which can be derived from modular projects, such as addressing skill shortages and environmental and sustainability targets”.158

143.Tony Meggs told us that in the past there has been “a track record in the industry of working with government to procure for the lowest cost rather than for best value”.159 Mott MacDonald wrote that “procurement needs to move from a traditional, transactional, risk-averse approach to recognise that value (not price) is all important”.160 A similar point was made by Mace, who welcomed the balanced scorecard approach announced in the Industrial Strategy, telling us “A scorecard that tracks elements such as spend with [small and medium-sized enterprises], payment practices, productivity and use of [modern methods of construction]” can be used to drive the right behaviour and practices that will promote productivity improvements.161

144.BEIS thought that the way Government procures construction projects “can influence the speed of emergence and adoption of new technologies, and encourage more economically and environmentally sustainable practices”.162

145.BEIS told us that the Government has encouraged a more strategic approach to procurement through Crown Commercial Service’s balanced scorecard:

“This is a procurement approach which balances cost against wider social, environmental and economic themes using a set of Key Themes and can also be used to encourage better working practices. It should be applied to all construction, infrastructure and capital investment procurement with a value over £10 million”.163

146.Ann Bentley agreed that the Crown Commercial Service has a “big part to play” because “a lot of public procurement … is done through that service”. She considered that the many historical frameworks used from procurement are not being combined into larger national frameworks. “Each framework would then probably have a lot of suppliers on it, because it is not trying to get rid of competition; it is trying … to aggregate the market”. Once a supplier was on a framework; “you might not know exactly which schools or hospitals you are going to build, but you will know that, as you are on the framework, you are in with a good shot of getting a percentage of that work” and would therefore be able to invest in manufacturing facilities.164

147.The Minister told us that externalities were “precisely what Government can stipulate in procurement contracts, and … Government has to stipulate these things if it is to achieve … targets to do with the environment”.165

148.The Construction Sector Deal commits the sector to “develop an industry wide definition of value which takes into account more than capital cost” and the Government to “embed [a] ‘procure for value’ approach in public procurement”.166

149.The use of national frameworks for procurement that include different suppliers should help maintain a visible and reliable pipeline. It should also ensure that there is no loss of learning between projects and that knowledge can easily be transferred from one project to the next, unlike the current system where learning is often lost as each project is re-tendered. Having different suppliers signed up to the frameworks will enable these benefits while also ensuring that there is still competition between suppliers.

150.We welcome the commitment to develop a definition of value and for steps the Government has taken so far to embed procuring for value in the public sector. However, more needs to be done. The Government must consider what further action it can take to embed procurement for value in the public sector and the consideration of externalities, including environmental performance, reduction of waste and health and safety in all procurement processes.

Sharing knowledge and best practice

151.While the public sector is the biggest client of the construction sector, procurement is done by many different bodies, including Government departments, local authorities and NHS trusts. Simon Rawlinson told us that this presents a challenge because the ability of the Department of Health and Social Care, for example, to influence NHS trusts “is a little limited”.167

152.We recommend that the Government shares intelligent client best practice in relation to off-site manufacture between departments and with other public-sector clients, such as NHS trusts and local authorities.


153.Tim Carey, National Product Director at Willmott Dixon, explained that a lack of harmonisation of design standards, particularly for affordable housing, is a barrier to greater use of off-site manufacture.168 Cogent Consulting explained that “with more standardisation there is a higher likelihood of a production process being repeatable and therefore automated, with automation comes investment in machinery which increases efficiency levels and provides cost reductions”.169

154.The British Standards Institute told us that “standardisation has a clear role to play in driving market development” in off-site manufacture.170 Rosie Toogood made the comparison to other industries where standardisation “is seen as an enabler”.171

155.The Government should promote the adoption of recognised standards for off-site manufactured components within the industry by working with bodies such as the British Standards Institute and the Building Research Establishment.

Research and development

156.The construction sector typically spends little on research and development (R&D). Cogent Consulting told us that it has the lowest spending on R&D of any sector in the UK, “currently estimated to be running at 0.1% of output”.172 The McAvoy Group argued that “R&D should be recognised as an inherent and critical part of offsite to maximise the potential of the sector and its positive impact on the wider construction industry”.173 Interserve stated that “the evidence is not well recorded” for the benefits of off-site manufacture and “a focus on detailed performance data for buildings” is needed.174

157.One of the aims of the Construction Sector Deal is to increase spending on R&D in the sector. Alongside the initial Sector Deal announcement the Government announced a £170 million investment in the ‘Transforming Construction’ programme, as part of the Industrial Strategy Challenge Fund.175 Fergus Harradence, Deputy Director of Construction at the Department for Business, Energy and Industrial Strategy, set out what this money would be spent on, including £70 million on a core innovation hub: “a centre that will take forward the development and commercialisation of digital and off-site manufacturing technologies” that will “work in a similar way to a catapult centre”. Around £30 million will be invested in an active building centre, which will “develop technologies that will enable buildings to be energy self-sufficient or ideally energy positive”. The remainder, about £70 million, will be “awarded by various competitions and will support R&D projects”.176

158.Mr Harradence went on to say that Innovate UK estimates that the Government investment will “leverage around £250 million of matched funding from the industry through its contribution to funding R&D projects”.177

159.Wider use of R&D tax credits by the sector could help to increase spending on R&D. Mark Reynolds told us that “HMRC should be working with industry on the R&D tax credits and demonstrating the benefits”.178

160.Kier Construction Ltd said that research on off-site manufacture has typically been into technology and economic solutions. They considered that consideration of “psychological, behavioural and cultural factors is potentially the greatest opportunity for review”.179

161.Her Majesty’s Revenue and Customs should work with the sector to foster greater understanding of how R&D tax credits work, what the benefits are and how to meet the criteria to receive them.

162.We recommend that a portion of Government funding for research and development in the construction sector should focus on detailed performance data for the lifetime of buildings and infrastructure. Not only will this provide an important evidence base for improving future designs, it will also enable a comparison for whole-life cost can be made between manufactured and traditionally built buildings and infrastructure.

163.The role of the Government and the wider public sector is pivotal in a move to greater use of off-site manufacture. We have set out actions that we think the Government should take including implementation of the Sector Deal, committed execution of the ‘presumption in favour’ of off-site manufacture and a greater move to procuring for value rather than cost.

131 Q 64 (Martin Chown)

132 Q 59 (Andrew Wolstenholme)

133 Department for Business, Energy and Industrial Strategy, Industrial Strategy: building a Britain fit for the future, Cm 9528, 27 November 2017: [accessed 11 June 2018]

134 Department for Business, Energy and Industrial Strategy, Construction Sector Deal (5 July 2018): [accessed 5 July 2018]

135 Q 57 (Andrew Wolstenholme)

136 Q 28 (Mark Reynolds)

137 Written evidence from Mott MacDonald (OMC0069)

138 Q 20 (Mark Enzer)

139 Written evidence from Dr Robert Hairstans (OMC0078)

140 Innovate UK and Infrastructure and Projects Authority, Creating a Digital Built Britain: what you need to know (2 August 2017): [accessed 21 June 2018]

141 Infrastructure and Projects Authority, Government Construction Strategy 2016–2020 (March 2016):–20.pdf [accessed 20 June 2018]

142 Q 22 (Dr Mark Bew)

143 NBS, NBS National BIM Report 2017 (12 May 2017): [accessed 20 June 2018]

144 Ibid.

145 59 (Andrew Wolstenholme)

146 Q 4 (Prof Jeremy Watson)

147 HM Treasury, Autumn Budget 2017 (22 November 2017): [accessed 14 June 2018]

148 Q 66 (Tony Meggs)

149 Q 74 (Richard Harrington MP)

150 Q 60 (Andrew Wolstenholme)

151 Written evidence from the CPA (OMC0050)

152 Q 49 (David Hurcomb)

153 Ibid.

154 Written evidence from the CPA (OMC0050)

155 Written evidence from Constructing Excellence (OMC0046)

156 Highways England, Highways England designated funds (14 June 2017): [accessed 20 June 2018]

157 Department for Business, Energy and Industrial Strategy, Construction Sector Deal (5 July 2018): [accessed 5 July 2018]

158 Written evidence from Trowers and Hamlins LLP (OMC0053)

159 Q 65 (Tony Meggs)

160 Written evidence from Mott MacDonald (OMC0069)

161 Written evidence from Mace (OMC0025). See also Q 59 (Andrew Wolstenholme).

162 Written evidence from BEIS (OMC0011)

163 Ibid.

164 Q 67 (Ann Bentley)

165 Q 74 (Richard Harrington MP)

166 Department for Business, Energy and Industrial Strategy, Construction Sector Deal (5 July 2018): [accessed 5 July 2018]

167 Q 56 (Simon Rawlinson)

168 Q 10 (Tim Carey)

169 Written evidence from Cogent Consulting (OMC0030)

170 Written evidence from BSI (OMC0022)

171 Q 15 (Rosie Toogood)

172 Written evidence from the Charted Institute of Building (OMC0040)

173 Written evidence from McAvoy Group (OMC0047)

174 Written evidence from Interserve (OMC0019)

175 ‘Government and industry cement deal to give UK construction the edge’, Department for Business, Energy and Industrial Strategy, (29 November 2017): [accessed 11 June 2018]

176 Q 73 (Fergus Harradence)

177 Ibid.

178 Q 28 (Mark Reynolds)

179 Written evidence from Kier Construction Ltd (OMC0024)

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