As modern methods of construction (MMC) continue to grow in popularity, it is vital that developers are aware of the differences between MMC contracts and standard construction agreements. A lack of understanding could lead to an unsuitable contract and disputes later down the line. So, what do developers need to know?
Understanding standard construction contracts
Standard construction contracts often include monthly payment instalments, with developers able to monitor the process of the build and ensure everything is on track. In the event of a delay, developers can halt payments until problems are resolved, and remain safe in the knowledge that if building work must cease, there is still a structure on site to work with.
Although logistical planning is still required within standard construction contracts, there is no need for additional thought around transportation and security to be outlined. As the houses are built on site, those logistics are already catered for.
‘Ownership of materials’ is a key part of any construction contract. Traditionally, ownership is passed from contractor to developer at the time of delivery. However, the process can be less straightforward with MMC, as the structure is delivered in one go, so the passing over of ownership needs to be carefully discussed.
The difference with MMC contracts
When it comes to an MMC contract, a greater awareness of its unique requirements is essential. Due to the build taking place off site, the developer must take into consideration that payments will have to be made for homes that have yet to reach the site. Therefore, it is better to make flexible stage-by-stage payments rather than set monthly instalments.
For example, deposits can be made as the manufacturing process progresses, and then further payments can come once the houses are delivered and constructed on site. If the offsite manufacturing process halts for any reason, developers could be left with nothing to show for the money they’ve paid, meaning risk-reducing measures such as stage-by-stage payments are vital.
The extra logistical aspects of MMC should also be considered. If a home is delivered to the site and it’s found to be damaged, it may have to be transported back to the factory. This would come at an additional cost and present some logistical issues that would not be covered in a traditional contract.
Insuring the build
Currently, there is no insurance that specifically covers MMC builds. Therefore, developers need to ensure that the insurance they do have covers any delays or defects that could arise. If the MMC provider is part of a larger construction company, then the developer may be able to secure a parent company guarantee, which would offer further security.
Before agreeing to any construction contract, developers should carefully consider the building method to avoid signing an unsuitable contract. MMC is still in its infancy, so seeking the help of a legal professional can help to ensure all aspects of the build are covered within the contract.
Our construction and residential development teams can provide guidance and support with any type of construction contract you may have in place, or land transaction you are dealing with. For further information please contact Ruth Phillips or Louise Ingram.
Our construction team is ranked as a Leading Firm in the Legal 500 2021 edition.
Our updated guide to recovery and resilience covers everything you need to navigate your way out of lockdown, unlock your potential and make way for a brighter future. Further advice in relation to COVID-19 can be found on our dedicated coronavirus resource hub.
From inspirational SHMA Talks to informative webinars, we also have lots of educational and entertaining content for life and business. Visit SHMA® ON DEMAND.