Introduction: Exploring Off-Site Construction in Australia

Off-site construction, also known as prefabrication, has been gaining traction worldwide due to its potential for reducing construction costs, improving efficiency, and minimising environmental impact.

In countries like Japan, Sweden, the US, and UK, off-site construction has seen significant growth and adoption. However, in Australia, the uptake has been slow, despite the numerous advantages. But why?

Promise of Efficiency

Off-site construction offers several benefits that are worth restating to set the context:

• Faster delivery: Construction activities are repeated, systematised, and aided by machine automation. Work can occur simultaneously on and off-site, flattening project timelines.

• Cost savings: Off-site construction can lower costs, especially in locations where labour is high or access to skilled trades is limited. Centralising much of the work in a factory setting with automation increases productivity per person.

• Enhanced quality control: By manufacturing building components in a controlled environment, there is greater precision and quality control is easier to manage

• Less waste: Off-site construction generates less waste, as it is more accurate in material forecasting, and allows easier upcycling of off-cuts

• Less time on site: Reducing the risk of stoppage from poor weather and disruption to neighbours from building works.

The Slow Adoption in Australia: Uncovering the Barriers

1. Business Model Challenges

• Shift from project to process: Shifting from a project to process mentality involves a fundamental shift in business model, moving from on-site labour-intensive processes to more automated asset-intensive production.

• Capital intensive: Off-site construction require significant investment in new technology, equipment, and facilities.

• Low-margin, high-risk business: The construction industry is littered with failed ventures in what is a low margin and highly cyclical business. A shift to a more capital intensive model that also requires continuous throughput to stay afloat is a challenging investment case.
  

2. Industry Obstacles

• Project finance: Banks and other financial institutions are not willing to finance off-site construction until delivered to site. This makes cash flow extremely challenging, as the off-site builder does not get paid until much of the work is complete. Contrast that with an on-site approach, where payment is more incremental, as the building is constructed in place. This is a critical issue to resolve and cannot be overcome by a single firm alone. It requires a coordinated approach from government and banks to help manage the risk, so financiars can provide payment and take security over components once completed in the factory, but not yet delivered to site.

• Insurance: It is challenging to cost-effectively insure building works in a factory setting. Without effective insurance, there is no backstop for purchasers and financiers.

• Business finance and path to scale: The construction industry has historically relied on independent, local subcontractors to deliver on-site work. To justify the investment in prefabrication, you need scale. In that sense, prefabrication suffers from the “cold start” problem, meaning it needs the scale for the economics to work, but without the economics it is difficult to get the investment, which you need to get to scale.

• NCC provisions: The National Construction Code (NCC) provisions are geared towards on-site construction practices. Deviating from the "deemed-to-satisfy" provisions (standard solutions that satisfy the performance requirements of the NCC) requires a performance solution for each change within a specific project, even if the change is the same from project to project. While you can design for off-site within the deemed-to-satisfy provisions, it makes adaptations specific to off-site more costly
  

3. Skills & Experience Gaps

• Skilled trades gap: A lack of skilled tradespeople experienced in off-site construction techniques and the use of automation. A further investment in training is needed.

• Design expertise: There is a lack of experience among architects and engineers regarding the capabilities and limitations of off-site construction, which is necessary for designing buildings that can be efficiently produced in a factory environment.

• Early developer commitment: To get the most out of off-site construction, commitment is required during the early design phase by the developer. It is generally too late once the construction tender phase has been reached, as many key design decisions have already been made. The development and architecture team therefore must commit early to the off-site approach, but then they are locked in, which is a higher risk commercial position, as your options are reduced.

4. Market Perception and External Factors

• Perception problem: Off-site construction may face a perception problem in Australia, with some associating it with lower-quality, temporary structures rather than high-quality, durable buildings. In reality, high-quality buildings can be constructed using prefab. Quality is often higher.

• Mild weather conditions: The relatively mild weather in many parts of Australia means construction can continue throughout the year with fewer weather-related delays. Off-site construction methods are less important in Australia to reduce weather-related risks.

Insights from Japan, Sweden, the US, and the UK

We can look to other countries that higher adoption of off-site construction. Three key patterns emerge: clear government industry policy, established supply chains, and an experienced workforce.

🇯🇵 Japan: A Tradition of Timber and Technology

Japan has been a pioneer in off-site construction, with the government actively promoting prefabricated homes as part of their housing policies. This support has led to major home builders like Sekisui House constructing over 2 million prefabricated homes since 1960. The Japanese timber industry has also developed robust supply chains that leverage both traditional techniques and modern technology.

🇸🇪 Sweden: Building Sustainably

Sweden's commitment to sustainability has driven its government to set ambitious goals for energy-efficient housing. As a result, off-site construction has gained significant support, and companies like Lindbäcks Bygg are constructing multi-story buildings using prefabricated timber modules. The Swedish timber industry provides high-quality materials and is deeply integrated into the process.

🇺🇸 US: Affordable Housing and Disaster Relief

In the US, the need for affordable housing and disaster relief has spurred federal and state governments to support off-site construction. Guidelines have been established, and programs established to encourage adoption. Companies like Factory_OS have streamlined supply chains by investing in advanced manufacturing facilities.

🇬🇧 UK: Making Progress

The UK government has set targets to increase the adoption of off-site construction in public projects. The Construction Playbook emphasises the use of off-site methods to improve efficiency and reduce carbon emissions. Companies like General Modular Homes and Laing O'Rourke are investing in manufacturing facilities, steadily growing the off-site construction supply chain.

Australia: Where to from here?

Some Initial Thoughts on Improving Adoption

Some of the key challenges include misconceptions about off-site construction, labour scarcity, and the need for a stronger local supply chain.

To promote off-site construction adoption in Australia, several strategies can be employed:

• Direct Government Policy: to overcome the specific barriers around off-site construction payments from banks and access to appropriate insurance for off-site works.

• Demonstration Projects: Showcase successful projects to increase awareness and understanding of off-site construction, helping to improve the perception amongst industry professionals and the general public.

• Strengthen Local Supply Chains: Invest in local manufacturing capabilities and support collaboration between suppliers to help reduce reliance on imports and make off-site construction more accessible.

• Material Efficiency and Waste Reduction: Emphasise the improved material efficiency and waste reduction potential.

• Address Labour Shortage: Highlighting the ability for off-site construction to work with leaner teams.

• Speed: Case studies demonstrating how off-site construction can minimise delays and the associated costs.

• Digital Tooling: Improved access to digital tools for upfront design-for-manufacture. 

• Timber Preference for Sustainability: A general shift towards timber over concrete and steel for cost, and carbon reduction reasons enables easier prefabrication.

Conclusion

Off-site construction holds significant promise for the Australian construction industry, with the potential to deliver cost savings, efficiency improvements, and reduced environmental impact. However, realising these benefits requires overcoming the challenges that have hindered adoption to date.

Collaboration and commitment across the industry are critical. By addressing industry barriers like access to appropriate finance and insurance, investing in education and training, and demonstrating the advantages of off-site construction through successful projects, Australia can unlock the potential.