Offering a deeper insight into their recent HD Social presentation on offsite manufacturing, Matt Jarratt, assistant director of Operations at Procure Plus, talks to Liam Turner about why they decided to go all-in on a modular framework, and how doing so can provide great benefits for both providers and clients
You had launched a framework between 2016-2020 that combined both traditional build and MMC. Why did you devote this latest framework solely to MMC?
We define the products and the stuff that we’re going to go out to market on based on what we can do and how we can make a difference in that marketplace…The problem with traditional developments is a lot of it is led by land, so you’ve got a developer coming along saying, I’ve got a massive piece of land here, there’s only them who can actually do it.
There is a framework mechanism that says somebody can call them off from somebody’s framework. But actually, you’re not adding much value because all you’re doing is adding one person that somebody can access but it is the only person who could do the job anyway.
But we just see that, with traditional development, you can’t learn from the market and interact in the same way that we feel you can with MMC and the other frameworks we have.
I think what’s interesting with the turnkey approach is we’ve got six contractors and six producers, and they have got a very big range of what they actually do. Some of them starting up are more based on housing but others are building schools and building hospitals, all that type of stuff.
Now, because of that, they’re very successful and they’ve got some good processes and ways of working…but they don’t necessarily buy a lot of boilers and housing items.
So, because we do…and have terms with a lot of the manufacturers, again, we have more value that way because we can source materials for the producers to able to again give extra value for money and continuity for customers.
There’s a lot of reasons behind it but it was very much about we felt we could do make a very difference with this and add value to the customer in that relationship.
Why did you opt for a ‘turnkey’ approach?
There’s a lot of development frameworks out there, and generally the development frameworks work with the developers, where you get people who organisations who do that as their bread and butter. But when it comes to offsite manufacturing, they still outsource it to other people.
At the moment, offsite is still quite prohibitive when it comes to the expense of it, and we know that things are moving and there’s lots of requirements, and requirements that are being published at the moment that are saying people need to do a certain amount manufactured in a certain way.
“With traditional development, you can’t learn from the market and interact in the same way you can with MMC”
What we were trying to look at was, how do we start to make it more cost effective and get people on board in these initial stages…so for us, a turnkey approach was for cost from one perspective but also to have a direct relationship with people.
Another one of the concerns around MMC at moment is that, yes, it’s expensive, but also what happens if things go wrong? We want a connection with who has actually built that property and has all the specification and all the details behind that.
The landlords are quite keen for the turnkey, as it meant they had a direct relationship in with the people who were building that in a factory, whereas in a traditional way you might have an overarching agreement with the developer who then has their own agreements in the background with the people who are producing it.
So, there were a couple of reasons for us: price and direct relationship.
Why is it important to build relationships with stakeholders in the market?
The construction sector, not just in the development side, has always had an issue that we’ve had this race to the bottom where everybody wants the cheapest possible price, and it has led to a lot of problems around what’s actually produced.
To me, relationships are about understanding what works for all parties. If you are going to just throw something out to a lot of different people and look for the lowest price, not work with them and understand to them what makes it work for them, you’re not going to get a good product. It’s not going to work.
We at Procure Plus are in privileged positions – we sort of sit between people. We want to make it work for all the parties, so we want to understand what works for the contractors and what they need.
So, I’d say the relationship side for us is a very good understanding of what works for people and understanding that there’s always going to be a fine line with this that you’ve got what works for all.
Procure Plus ‘goes to market’ over 300 times a year, whereas some of your competitors might do so only a few times each year. Why is this?
Going to the market lots and lots of times for us works brilliantly because, if we’re trying to understand what a reasonable price is, the only way to do that is to go to the market a lot and understand how accounts across is built up and how the different people will apply that in different ways and understanding across the country what is a reasonable price. So, you need that exposure to the market to be able to understand that element to it.
But you also need the trial and error, because I go back to the contractors who want to make the 13% or 14% – a lot of them are very savvy and might start to offer a price that looks like the making 3% or 4%, and then they spend all their time understanding the documents that you put together, finding loopholes to then build it up to 13% or 14%.
But it isn’t just about going out to market, it’s going out to market and then following that fruit for the duration of the project. There’s a lot of people will go out to market and then hand it on to someone else and say, I’ve got you a really good deal, here you go, you make it work. And that’s where a lot of them will start off with a really good deal and it will turn into lots and lots of different things, and the end up with that 13% or 14%.
So for us, testing the market is understanding where the market sits and what’s reasonable, understanding where people are trying to achieve to a certain degree, and closing those loopholes so that, every time we do set a document, they’re an iteration of the last one.
You have opted for a flexible approach to call-offs with this latest framework, offering both single-stage and two-stage mechanisms. Why was this important?
Single stage
The single-stage is basically where a landlord, to get an architect on board, will say, right, here’s our site, so doing the architectural work they’ll take the client brief and then they’ll generally use one of their standard house types. Everybody’s got standard house types. Nobody redraws the standard properties each time, I use my standard house types, and I’ll work out the size of the plots, and how I can already take those properties.
So, what you generally get in the single stage is you’ll get an architect design around how many properties it’s going to be, the types of those properties, and the design for them. And what they then do is they go out to the market and say, we’ve done all the work for you, give us a price to do that, and we want the fixed price.
What the landlord will do when it comes to a single-stage is they’ll say, right, I’ll give you some site investigation works, so I might have dug a few trial bits, can tell you a bit about the ground and what you could expect, but then I want a fixed price from you. Say, give me a price for the foundations and the properties, so they put it all on the contractor.
But for our contractors at the moment, when it comes to traditional, it does work for them to a certain degree because generally they can build whatever anybody wants…It’s not as streamlined as their standard house types, but it will be able to build whatever you put on there, so there will be a bit of a premium because of the coordination and how it might work.
Because of that single-stage approach, the main reason why it doesn’t work particularly well in this sector at this moment in time is you won’t get bidders. So, if we’ve got six people, potentially with a single-stage approach you might have one or two of them that are actually interested in it, and that might be because the house types that you specified are quite similar to theirs and they can see how it might work.
So, the single-stage will reduce the appetite from the market, and it puts all the risk onto the contractors.
Two-stage
The two-stage that we’ve started to talk to people about, it was very much from our market engagement to say, how would it work for you? A lot of them are saying, well, I’ll give you a fixed price for above ground – so anything above the ground for my standard house type – and then if we can go to the next stage where we investigate the ground conditions and the various bit around it.
Because, whether it is the two-stage being appointed after the first stage, it means that again there’s less risk because I’m not putting in loads and loads of work for a single-stage process. There’s a one-in-six chance of winning anyway, so it’s one of those.
“The landlords like the one-stage because they want all the risk on the contractor, but if we are to change as a construction industry, we can’t just push the risk onto everyone”
Two-stage works better for people because it allows them to share the risk, but it also means that there’s more likelihood of things going forward.
Bidders are much more comfortable when it comes to the two-stage process. The landlords like the one-stage because they want all the risk on the contractor, but if we are to change as a construction industry, we can’t just push the risk onto everyone – it should be about understanding that risk and turning it into an actual cost. And if it is a cost, we can understand whether this is something that’s wrong to pay for or not.
How long do you think it’ll take for MMC off site modular to become competitive in the market?
I don’t think it’s a million miles away. I think a lot of it will be regional, and when it’s regional it becomes more interesting because then in the south, if have are in factories in Runcorn or wherever it might be, it doesn’t matter where the site is in a lot of cases because your production costs are still contained within a certain place.
But the market is changing…The materials market is changing massively, we’re having loads of issue at the moment with certain items, and there’s a lot of issue around shipping containers…Because everybody has been purchasing them so much over the COVID period when it comes to general retail, the price has massively gone up, so again it starts to come to the availability of items.
There’s going to be a lot of pressure on the sector over the year, which will bring down the cost of MMC. But we will increase it to a certain point because some of the crude materials that we will use will depend on where they are being sourced from and how they are being worked.
As we go forward, as the pressures ease on all those different elements I’ve just highlighted, it will start to shift around the attractiveness of different types of construction and the sheer numbers.
In your presentation you said Procure Plus is looking into doing more factory visits. Why is that important to you?
Generally, whenever we start to interact with the marketplace we want to do everything we can to understand that marketplace. And when it comes to understanding a reasonable price, you really need to understand how that price is built up.
So we have a commercial team of experts and a commercial manager, and we want to really get into the nitty gritty of these house types and also production methods so we can understand where the costs are, how it works, and understand the products much better. Because again, when it comes to them interacting with the landlords, they want to be speaking to people who understand the sector well, and that’s our starting point with it.
All we’re saying is, let’s just understand where the costs have been made up. If your product is made up of 80% steel, and the price of steel has trebled over the last six months, I can understand where you’re at. I need to have that understanding before I can really make a judgement on it. So, it is very much around getting to know what’s going on and understanding these businesses a lot better.
I guess it comes back to what we were talking about earlier, which is about that added value.
Definitely. We’ve got a good mix within our organisation, and we built it that way on purpose. We want a good level of technical expertise or level of commercial expertise because you can’t concentrate too much at a level of procurement all the various bits around it – you need to have a good understanding of how everything works or seems to really be able to add that value.
Procure Plus is a Housing Digital Stakeholder and a social housing regeneration consortium that generates efficiencies by leveraging the procurement of construction materials and contractors.
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