The COVID-19 pandemic has ushered in an uncertain period for many contractors. Some have been forced to shut down projects due to state or local mandates while others have seen their customers scuttle or postpone new projects. Even those construction companies that have not been immediately impacted are wondering what the future holds for their businesses.

So, it is natural for some construction leaders to start thinking about expanding into new lines of work, modular construction included. In fact, early on in the COVID-19 crisis, modular construction got a public relations boost when the world watched China build fully functioning hospitals in just days using prefabrication and modular technology.

"The COVID-19 crisis ... could be a catalyst for wider industry awareness and adoption,” said Michelle Meisels, engineering and construction practice lead at consulting firm Deloitte.

According to a McKinsey & Co. report last year, the combined U.S. and Europe modular industries could reach $130 billion by 2030 and could save the U.S. and Europe $22 billion annually in construction costs. Modular projects, according to McKinsey, also have the potential to reduce schedules by 20% to 50%.

But before general contractors and subcontractors begin exploring a shift to modular, there are several factors they should consider, experts say.

Schedules, budgets and bids

Both general contractors and subcontractors can use modular construction, said John Beddow, CEO of Guerdon LLC, a modular manufacturer in Idaho, but they have to prepare for the sea change in how they schedule and budget for the projects.

“Some GCs get in trouble because they want to drive the schedule the way they've always driven it,” he said, “and it ends up not saving the time they could have saved.”

At the start of a project, there are the same phases of work to complete, like prepping the site, bringing in infrastructure and building the foundation. But, Beddow said, "the minute modular arrives, it changes.”

For onsite crews, he said, most of their time is spent in corridors and the exterior of the building making the necessary connections between modular units and the structure rather than finishing the interior spaces. This also means that general contractors can’t craft the schedule in the way they usually do, instead allotting significant time for the portions of work that will be done in a factory.

Much of a subcontractor’s typical scope of work is also included in the prefabricated modules, so there’s a learning curve as far as bidding, Beddow said. Many subs that have done multifamily or hotels are used to making a certain dollar amount per unit, but, with the reduced scope of a modular project, there’s not as much money in it for them.

“What’s going to happen,” Beddow said, “is the project is going to go over budget because the sub is overcharging for the scope of work it has.”

Therefore, he said, Guerdon spends a lot of time with general contractors and subcontractors to make sure they understand their scopes of work and how those might change during the transition from a traditional project to a modular one.

Jan Mischke, partner at the McKinsey Global Institute, the business and economic research arm of McKinsey & Co., said contractors would do well to take advantage of modular companies that are willing to educate them on the process, as well as associations dedicated to modular construction “to get a better sense of what others are doing and what's out there on the market.”

And the more a contractor can become familiar with the process the better. For example, one of the greatest benefits of using modular is that the units are manufactured in a factory setting according to exact specifications. But that can also be a drawback as there is no opportunity to correct major errors.

Project types

Usually, Mischke said, a high level of repeatability and standardization are what makes a project a good fit for modular, which is why the industry has seen hotel, healthcare and multifamily contractors use the method.

“[If you have] 200, 300 or 500 rooms that are all the same, you have relatively high-value density because all of those rooms come with a bathroom, which is otherwise complex and costly to construct,” he said.  And the unit sizes themselves are manageable enough that they can be put on a truck and transported to the job.

But there are a world of other project types, and Mischke said that it’s possible more owners will turn to a hybrid solution so that they still can customize as needed while taking advantage of modular’s benefits.

For example, a developer of a mixed-use building, he said, could use traditional construction for the foundation, basements and lower-floor retail spaces, which are not typically sized for transport. Modular could then be used for the living units on the upper floors.

“Then they put a custom facade on the outside so that [the structure] has any design and aesthetic quality that you can imagine,” he said.

In fact, Beddow said, there are manufacturers that specialize in producing specific modular elements like bathrooms in order to serve the hybrid approach.

These projects could also be a natural transition point for contractors considering a shift to modular or at least adding it to their portfolio of services, Mischke said, by exposing them to the method on a smaller scale.​

Construction firms, Beddow said, should not discount the influence they have with owners in making a decision to go modular, particularly if the contractor and owner already have a successful relationship.

“We [also] have architects who will influence owners to consider a modular solution for a variety of reasons, schedule being probably the most prominent,” he said. 

Labor issues

To offset the impact of the pandemic, Meisels said, construction companies are likely to move toward modularization and prefabrication of components not only to improve productivity and margins, but to mitigate impacts on the labor force and availability of workers.

Even though the U.S. unemployment rate is at a level not seen since the Great Depression, construction managers are struggling to fill jobs. There are several factors suppressing skilled labor across the country, according to panelists at a recent AGC webinar, including robust unemployment benefits and a fear of infection.

“I think, in general, people are going to have to build modular projects because there's just not going to be the labor to do it otherwise,” Beddow said.

An enhanced focus on safety, cleanliness and social distancing also will help accelerate the industry’s move to offsite construction methods, according to Joe Natarelli, leader of Marcum LLP's national Construction Industry Group​​.

“It reduces the amount of time you’re in the field, and keeping the labor force in a controlled environment is good from a health standpoint, too,” he told Construction Dive. “So maybe now you have a job that because of the pandemic went from six months to nine months and maybe this can shave that to eight months while you’re also promoting social distancing, too.”

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