Alongside innovation in design and construction methods, it is fitting that we also take a fresh look at the contractual mechanisms that govern the procurement of modular and off-site fabrication components. The most popular industry standard forms such as JCT, NEC, ICC and FIDIC each have elements that can be adapted to suit the modular construction method, but none of these really address the "factory to finished building" model. David Cordery of Trowers & Hamlins LLP looks at whether the industry standard forms are keeping pace with the legal risks presented by these modern methods of construction.
- Design - Most standard copyright clauses state that intellectual property rights (IP) in the product remains with the creator but the client is given a copyright licence to use the IP for all purposes connected with that particular project. Clients using modular however will often need a wide-ranging right to use the designs for its new "brand" of housing development across multiple sites.
- Factory Sign Off – We would recommend a bespoke inspection and sign-off regime with several key stages. For example, creation of the basic modular "box" unit, installation and commissioning of plumbing and M&E elements, sign-off of internal finishes, sign-off in batches or against a single benchmarked unit; all of these off-site elements are deserving separate certification before payment is released.
- Insolvency – one key risk in modular projects is insolvency where a single supplier is responsible for the major part of the construction. Vesting is one obvious answer, meaning that if the modular provider goes bust the client can take positive action to reclaim goods that rightfully (and, more importantly, legally) belong to it. The client may also want step-in rights but, in practice, multiple clients cannot all step in and operate the same factory at the same time. The answer may come in the form of greater collaboration in the industry.
- Transportation – With modular, there is always the added risk that the units are not lost or damaged en route to site. Contracts will need bespoke provisions setting out obligations to adequately pack and load the modules and procure insurance for their transportation and any off-site storage.
- BOPAS – Similar to warranty schemes such as NHBC, the Buildoffsite Property Assurance Scheme (BOPAS) has been developed to give comfort to purchasers and lenders of "innovatively constructed properties". Developers subject their scheme to a durability and maintenance assessment and then have the scheme accredited so that they can market the property as being assured by BOPAS in the same way that other latent defects schemes have become the market standard in traditional construction projects.
The above piece is an abridged version of an article that appears in the Trowers & Hamlins LLP report "Modular construction - Is it time that we started taking modular construction seriously?". The full report is available at: www.trowers.com/resources/thoughtleadership/is-it-time-that-we-started-taking-modular-construction-seriously