CCI: Contractors Expect Modularization to Disrupt Supply Chain

More than a third of general contractors and subcontractors believe increasing prefabrication and modular construction will disrupt the industry supply chain. That’s according to the Q1 2020 Commercial Construction Index (CCI), released by USG Corp. and the U.S. Chamber of Commerce, which focused on offsite construction for its quarterly spotlight.

Of the contractors surveyed, 38% believe that increasing prefabrication and modular construction will create a new kind of supplier that provides modular, pre-manufactured assemblies that can be designed with and specified. This would thereby significantly reduce the quantity of building products and equipment contractors procure from traditional manufacturers and distributors. Of those contractors who agreed, 73% expect this to occur in five years or less.

Thirty percent of contractors surveyed believe increasing prefabrication and modular construction will give rise to a new class of vertically integrated design/manufacture/assembly companies that provide turnkey building-project delivery to owners. This would significantly disrupt the traditional multiparty workflow and supply chain for building products and equipment. Of the contractors who agreed, 65% expect this to occur in five years or less.

While about a third of contractors expect supply chain disruption, 22% of those contractors believe most current product and equipment manufacturers and their distribution channels won’t be able to adapt to the modularization trend successfully. Instead they believe that the market opportunities will either go to companies currently outside the construction industry or to new, purpose-built companies. Of those who agree, 73% believe this will occur in five years or less.

The use of four common types of prefabrication and modular construction are expected to increase in the next three years. The four common types include:

  • Single Trade Assemblies: Prefabricated building components carried out by a single trade contractor, such as plumbing assemblies for large public bathrooms;
  • Multi-Trade Assemblies: Prefabricated building components that involve the work of multiple trades such as above-the-ceiling corridor racks in hospitals that include mechanical, electrical and other trades;
  • Panelized Modular Construction: Entire building components like wall modules or roof panels built offsite and installed on the project; and
  • Full Volumetric Modular Construction: Entire rooms or building sections built offsite and then joined together onsite.

More contractors expect to use prefabrication or modular construction on 25% or more of their projects in the next three years compared to the last three years.

“As labor markets continue to tighten, offsite construction can provide relief from the pressure of finding workers, since productivity in a factory setting is typically higher than in the field,” reads the report.

The top sectors in which contractors have used prefabrication in the last three years are:

  • Healthcare (51%);
  • College buildings/dorms (32%);
  • Hotels (28%); and
  • Public buildings (30%).

Contractors expect the use of prefabrication in each of these sectors to grow in the next three years, with the use of prefabrication in the hotel sector expected to grow the most. However, the ranking of top sectors is not expected to change in the next three years.

There are differences in where trade contractors and general contractors expect to benefit. Trade contractors report strong benefits from the use of prefabrication while general contractors benefit most from modular construction.

When it comes to prefabrication, 73% of trade contractors report a decrease in project schedule compared to 58% of general contractors. In addition, 82% of trade contractors report a decrease in project budget on projects involving prefabrication compared to 58% of general contractors.

“However, even if that is the case, general contractors are clearly aware of the benefits to their projects of these approaches, with over half also reporting improved schedule and budget performance,” reads the report.

The trend is flipped for modular construction. Eighty-eight percent of general contractors report a decrease in project schedule for projects involving modular construction compared to just 36% of trade contractors. And 91% of general contractors involved in modular construction report a decrease in project budget compared to just 46% of trade contractors. This is likely because trade contractors typically are not as involved when modular manufacturers are used for a project.

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