June 20, 2019

Procurement Options for Off-Site Manufacturing (OSM) Seminar

Following on from the launch of our Innovation in Construction Report last September, Clyde & Co have been focusing on the potential implications of off-site manufacturing (OSM) across the UK Construction industry.

In line with this, we delivered a seminar on 11 June looking at Procurement Options for OSM that explored the practical implications for procurement structures, contract negotiations and supply chain management.

The seminar was kicked off by Neil Thody, Managing Director at Cameron Consulting, who provided a highly illuminating walk through the procurement stage of an affordable housing programme, valued at £300 million and lasting 10 years in duration.  This was recently procured by the Royal Borough of Greenwich, and contains a considerable OSM (modular / volumetric) element.  The procedures, innovations and challenges were all clearly articulated - with the early consultation processes at the outset, and the layered structure for instructing services and works through to construction stage, being particularly innovative.

This was followed by an equally informative dissection by Jonathan Brown, Commercial Director at Mace, of its "rising factory" project at East Village in Stratford.  Jonathan detailed the benefits, which included the ability to measure production efficiencies along with cost saving benefits in labour and logistics, as well as the challenges, such as the complex removal operation on demobilisation of the project.  The considerable programme savings, particularly in the often problematic last phases of construction, were a standout benefit. Mace also identified how the next steps in Modern Methods of Construction were shaping the future of how we analyse project delivery.

Both Neil and Jonathan brought home to the audience that increased involvement of manufacturers in the construction process will ultimately change the nature of procurement.  A more strategic approach, involving partnering and long term pipelines of work, will facilitate optimisation of OSM across projects to its fullest extent.  Of equal note is how tendering parties and stakeholders have generally been willing to participate in, and support, the innovative processes involved.

However, they did emphasise that the use of OSM should be viewed as an evolutionary step, and not as a revolution.  This was certainly reflected by the continuing use of fixed price, single point responsibility as the final contractual stage in procurement for the projects referenced.  Having said this, both were optimistic that more traditional, and less flexible, contractual features of procurement may well recede, as OSM becomes more established in the industry.

The seminar was rounded off by reflections from our Senior Associate, Russell Banfi, on potential new contract structures that might be engendered by the increased use of OSM, together with a short piece by Senior Associate, Chris Leadbetter, on what construction disputes might look like in this brave new world.  As well as considering whether new standard forms are needed, and whether existing procurement structures can be adapted to suit the OSM paradigm, discussions focused on the extent to which alliancing and partnering can give rise to enforceable legal obligations, and their implications for dispute management and resolution.  These topics provided further food for thought when measured against the practical experiences outlined by Neil and Jonathan.

As OSM continues to gain momentum across the industry, Clyde & Co will continue to provide guidance and advice on the collective direction of travel in this area. If you have any queries or require further information on this topic, please contact Robert Meakin or Will Cooper or your usual Clyde & Co contact.

A key driver behind OSM is the speed of construction - Neil Thody, Managing Director at Cameron Consulting

We're not trying to change a product, we're trying to change the method behind the product. - Jonathan Brown, Commercial Director at Mace