Grand designs – Who should take the design risk in an MMC project?

Modern Methods of Construction (MMC) have been touted by many as a way to tackle costs and inefficiencies within the construction industry.  The impacts of Brexit on worker availability, skills shortages in the construction industry, and the ever pressing need for affordable, high quality homes has meant that MMC may play an increasingly crucial role in the United Kingdom in future.

One of the issues to be considered on any MMC project is who is to take the responsibility for the design of the MMC elements?  In traditionally built projects, there is generally a design phase and a construction phase.  The developer’s professional team may retain responsibility for the bulk of the design of the works.  Alternatively, the contractor may take responsibility for the design of the works under a design and build contract.

However, MMC introduces an additional element in this process, being the ‘manufacture’ step after design, and before construction on site.  This manufacturing step may be undertaken by a specialist MMC contractor and may involve completing the design of elements of the MMC work. 

The question of design risk on projects involving MMC is therefore not necessarily clear cut.  There are a number of options that may be suitable depending on the type of project, the extent of the MMC required and the MMC capabilities of the parties involved.

Professional team retaining design responsibility

MMC may include completed rooms with internal and external finishes installed such as bathroom pods, hotel pods, or component parts of houses.  

Developers can develop a comprehensive detailed design at an early stage for these modular elements in part due to the increased digitisation of construction design through tools such as BIM.

The advantages of the professional team taking on the design risk is that the developer’s design can be established and crystallised at an early stage, which can then be repeated over numerous different projects such as housing developments (although this will also depend on the copyright licences provided to the developer).  There should therefore be limited unexpected costs arising on a project through design changes, one of the core benefits of MMC.  As anyone watching Kevin McCloud over the years will know, the more changes to design that are made during development, the longer projects take and the more they cost.

In this scenario, a contractor would take responsibility for procuring the MMC elements in line with the professional team’s design, and then installing these MMC elements correctly on-site.

However, this approach relies on the professional team’s design being robust and the developer being comfortable with the main contractor not having single point design responsibility.  If an element of the end works is defective due to design and installation issues, a developer would need to pursue both its professional team and the contractor, which will usually lead to longer and more expensive proceedings with arguments as to which party should take responsibility for the defects.

A developer could mitigate these issues by carrying out regular rigorous inspections of the works and maintaining thorough records, so that it can identify the responsible parties should defects arise.  

Contractor taking single point design responsibility

Another option is for the contractor to have single point design responsibility on projects involving MMC elements.

A contractor may be comfortable accepting the design risk of MMC work to be designed by others.  This will usually be subject to the contractor having recourse in respect of that MMC design through either novation of the relevant designer‘s appointment, or a collateral warranty provided by that designer.  In addition, insofar as the MMC work is to be manufactured by a specialist MMC sub-contractor who is also taking design responsibility for some elements of the MMC work, that design risk could be accepted by a main contractor in a similar manner to the design risk of other elements of the works carried out by specialist sub-contractors.

Some main contractors and housebuilders have (or are increasing) their internal capabilities to manufacture elements of an MMC project.  If the main contractor has the internal capability to design and manufacture elements of an MMC project, it would be able to accept single point responsibility for these elements and there would be no third party specialists from whom the main contractor had to secure contractual rights of recourse.

Insofar as the contractor is accepting the design risk for MMC work, its professional indemnity insurance would have to be carefully reviewed to ensure it adequately covers any design risk in MMC work.

Construction management

Some developers will procure their projects using construction management.  In that situation there would be no main contractor.  The developer would appoint the professional team and the trade contractors to design and construct the works, this would include the specialist MMC contractor. 

The MMC contractor is only likely to accept single point design responsibility for the MMC work in such a situation if they have a contractual right of recourse against the members of the professional team who designed any parts of the MMC work.  This cannot usually be provided by a novation of the relevant designer’s appointment, as their responsibilities would usually extend beyond the MMC work such that they would have to remain employed by the developer. 

Such a contractual right of recourse could be provided by a collateral warranty from the relevant designers.  However, if the relevant designers are not willing to provide such a collateral warranty, the MMC contractor is unlikely to accept single point design responsibility for the MMC work.  The design responsibility for the MMC work would therefore be split between any party who had contributed to its design.

Conclusion

Parties are always considering design risks when considering procurement options and negotiating construction contracts. The introduction of MMC into a development is an added consideration in this process.  

The key point is to ensure there is a clear agreement as to who is accepting the design risk for the MMC work and that this is properly documented in the various contracts for the construction of the project.

Carolyn Davies is an Associate in the Construction, Engineering and Projects team at Charles Russell Speechlys LLP. Carolyn can be contacted on +44 20 7438 2149 or by email: Carolyn.Davies@crsblaw.com.