This episode was recorded on the land of the Wurundjeri people of the Kulin nation. We pay our respects to their elders past, present and future.
Richard: Hello, and welcome to another episode of Precisely Property. I’m your host, Richard Temlett. I’m excited to have you with us today.
If you’re here for the first time, thank you for joining us. I encourage you to listen to our previous episodes where we discuss all things property, with a focus on dynamic discussions with industry leaders. In this episode, we’ll be talking about Modern Methods of Construction and the use of timber building solutions with Pete Morrison of Green Timber Tech (GTT). So sit back, relax, let’s get started.
Pete is a passionate Modern Methods of Construction specialist and is focused on solutions that will help drive change in a sector that needs to keep pace with productivity gains in other sectors. Pete has a vast knowledge of off-site construction, what changes need to be driven across the market to encourage the quick adoption needed to reduce waste and impacts on the environment. Pete is executive director and CEO at Green Timber Tech (GTT), a Modern Methods of Construction Kit-of-Parts manufacturer specialising in highly complete panelised systems. Welcome Pete.
Pete: Thanks, Richard.
Richard: Pete, in today’s episode, we’re going to talk about Modern Methods of Construction and the use of timber building solutions in construction. This is relevant because we have a construction industry that in many aspects is behind the times, and productivity is extremely low. We’re even going backwards in the sector. In my view, anyway, the industry is particularly ripe for disruption, and we simply have to adopt new and different methods of doing things to solve the housing crisis, but also to address the construction of real estate in this day and this age. Before we get into the show, I do have an icebreaker question for you, and the question is as follows. If you had a full year off with no obligations, how would you spend your time?
Pete: I think everyone would probably say the same, which is not work or at least try and enjoy themselves and put their feet up a bit and relax. But I find myself looking back on the last 10-15 years of my career and I worked incredibly hard in consultancy and entrepreneurship, which can be very taxing. I’m a big kite surfing, water sports, surfing fan, so I’d probably take myself away to a far corner of the world and just kite surf for 6-12 months and probably take the family and cruise around wherever that is. That would be on my radar and is probably on the radar at some point in the next 20-30 years, hopefully.
Richard: That’s a fantastic answer. I’ve tried kite surfing once. I thoroughly enjoyed it, but it’s really difficult. And no doubt if you come down to Victoria, I certainly encourage you to do that. I have seen every now and then I surf around Torquay and Bells Beach. I see the kite surfers there. I don’t know if you kite surf into actual waves and go down the waves. I’ve seen them do that. I’ve not been brave enough to do that. That looks absolutely amazing.
Pete: Yeah. No. It’s pretty cool. Pretty special sport.
Richard: Alright, Pete. When I was doing some background research on you and we were introduced by a mutual friend, your background is absolutely fascinating. And I was hoping you’d be able to talk a little bit more about your background and experience in the industry. That’ll set the framework for the main part of the show and explain to the audience the significant experience that you bring with yourself.
Pete: Sure. I’ve got a bit of a different background to most. Most people come through universities studying structural engineering or construction management, and that’s how they end up in the field. I was quite different. I started off in the oil and gas industry working in the North Sea, of all places, on oil and gas rigs. I was a dimensional surveyor engineer, so that’s all about positioning assets on the seafloor or on the oil rig itself and making sure they were in the correct position. That taught me high accuracy towards tolerancing. And when you’re offshore and you’re 200 miles offshore, you haven’t got a way that you can just fix it on-site. You have to do everything off-site, and you have to plan it to the millimeter.
Off the back of that, early days of my career, there was an oil and gas price crash. There’s a mass redundancy, so I retrained to go into the construction sector rather than staying in the cycle of oil and gas, which continually goes up and down. I picked up a job where I was a project engineer on sites in London for a company called HUF Haus. They’re a German prefab builder. We were their project engineer, let’s say, who was contracted onto their sites to set out and install their Kit-of-Parts system. Their system was a very high-end steel system. If you Google them, you’ll see the houses, they’re unbelievable. And the London office seemed to have the most amount of work out of anywhere because I think the price point, it was all of the exclusive gang in London who could afford them and build them. So, we were very busy.
That was my first dipping my toe into construction and made total sense. And I was like cool, this makes sense. And then got a role after that with Jacobs who are a large global consultancy where everything we were working on was traditional. So, we’re building schools and hospitals and prisons in the UK, and it was all very conventional stuff to which I started identifying a bit of a niche to focus on Modern Methods of Construction (MMC) and try and get that to be embodied and embedded into the projects that I worked on. It was a very large program with the Department of Education UK. We had something like 60-70 schools across the portfolio that we were managing, and we slowly started to implement MMC into those, which a lot of builders in the UK adopted and took those on quite well, which was great.
Then I moved to Australia in 2019. There was a very large commitment made by School Infrastructure in New South Wales to start building schools using Modern Methods of Constructions. I moved over from London to Sydney and started working on that program. I spent the best part of three or four years working with School Infrastructure in New South Wales on a secondment, looking after the Modern Methods of Construction program that they rolled out between 2019 and 2023. It involved all sorts of different technologies. We tried volumetric approaches, Kit-of-Parts. There were discussions about flying components in on helicopters and dropping them in and all sorts.
It was a pretty quirky time, but we tried lots of different systems. I look back on the time there, and it was a pretty exciting program to be part of. It’s a very interesting way that that came to a conclusion, which I think is a problem which we can talk to. But, yeah, that’s where I’m up to at the moment. And obviously, off the back of that role, the guys at GTT had an early embryonic understanding of what they were trying to achieve. But I think when I stepped into the business, I brought a bit more of the implementation eyes and how to take it from where it was to getting it forward. So, yeah, fast forward three years, I think I’ve been involved in this business now and look at it as myself and the other founders. But, yeah, really exciting to get it to where it is and keep kicking on and deliver some really exciting projects.
Richard: That’s a fantastic background and thank you for sharing it with us. Certainly, we have a number of mutual clients, mainly in New South Wales. They speak very highly of you. And I wasn’t aware of all your background, but the fact that you’ve had to design off-site to within the millimeter, I find that fascinating. And certainly, that would set you up for what you’re trying to achieve now.
In terms of today’s session, we’re going to break it into two parts. We’re going to talk about Modern Methods of Construction, just the fundamentals. It is an education piece. And then the second part we’re going to talk about is what government needs to know, the role that the government and the private sector can play to hopefully get all these Modern Methods of Construction into more mainstream Australia. I think it’s absolutely critical that we do that. And, again, that section will also be an education piece. So, let’s dive into part one of the session talking about Modern Methods of Construction.
For those people that don’t live and breathe it like you do every day, and I must admit I’m still learning about this, why do we need Modern Methods of Construction? And quite simply, why should consumers or end users care about Modern Methods of Construction?
Pete: Yeah. I think the main driver behind why do we need Modern Methods of Construction goes back to the industry as a whole, and everyone knows about the productivity issues that are crippling the industry. There’s also cost escalations, which everyone seems to point to and say, oh, it’s cost escalation due to COVID, and these are the reasons. I think it’s because the building market has had their way with the building industry for the last 20 or 50 years. They’ve got no reason to change, and so there’s a system which they use to, unfortunately, make money, which doesn’t help the consumer. I think it’s an industry which somewhat is very capitalistic. But also, you’ve got the average age in construction in Australia, I believe, is mid-fifties. So fast forward 10 years when that group retire and all moved out the industry, we don’t have the labour coming in behind. There’s going to be a chronic labour shortage coming in the next 10 years, and it will be almost like a tidal wave. There is a wave going through the industry at the moment, so we’ve got to do something different.
As an industry, and I’m not even talking about as a consumer, I’m talking about as professionals in the industry, we’ve got to be aware that we can’t just carry on the way we are. At the moment, we’ve been incredibly wasteful. It’s an industry which doesn’t really innovate, and it’s just rinse and repeat. And, unfortunately, rinse and repeat eventually will fall over and won’t work. So, I think that’s one of the main reasons why it needs to change. But from a consumer’s perspective as well, with the demand around high performing buildings, with your building envelope, air tightness, energy efficiency, and performance, I think we’re going to move away from assets being valued based on their features, which is how many plugs it has in the wall and all of the stuff which estate agents love to rattle off. Whereas I think fast forward 10 years from now, and it’s going to be assessed based on its performance. If you own an asset, which is old and, yes, it’s got 50 amazing gadgets in there, but let’s pretend that building is terribly cold, isn’t very energy efficient with energy prices going up, that asset would probably be worth less than potentially a high performing home, which is slightly more simplistic.
What GTT’s mantra is we’re focusing on producing high quality homes, high performing homes at a decent price point rather than saying we’re making this premium product with all these gadgets and gizmos. It’s about performance. I think end users need to think about that. And then there’s also challenging the current approach on program and timelines. There’s a housing shortage at the moment. Government are pretty far behind their targets. The private sector is pretty far behind their targets. And this isn’t because they’re not trying. It’s just because of certain restraints that are in place. And I think MMC as a collective, I’m not saying it’s a silver bullet. I don’t want people to call MMC the silver bullet. I think it’s part of the solution. It’s got to be one piece of the puzzle. But I think with the speed advantage, the quality advantage by being built in a controlled environment, that’s got to be part of the solution. I think at the moment and again, these quotes are off the top of my head, but around 5% to 6% of construction in Australia is done using a prefabricated approach. Even if we just nudge that up to 15%, that difference, there is capacity in that market.
So today, there are factories around Australia that are primed and ready to go for it. That’s volumetric. That’s Kit-of-Parts as well, the two different approaches. And at the moment, dare I say it, they’re off delivering pretty average programs. They’re doing 5-10 houses at a time. Whereas if we were given the opportunity to roll out 50-100, you suddenly see a huge cost saving at that point that no project sponsor has come along yet. And that includes government, that includes private sectors. There are project sponsors willing to look at ones and twos of projects. But unless they take a long-term five-year horizon, ten-year horizon funding view, I think the efficiencies are still there, but they’re not as big as they could be.
Richard: Very interesting. As you were talking, I realised I’m keen to also continue to educate the industry. For people that are not familiar, let’s go through a couple of terms and conditions. First one is what is or what are Modern Methods of Construction? What are the different types?
Pete: Yes. Modern Methods of Construction, there’s lots of buzzwords and words used. There’s Design For Manufacturing Assembly, DFMA, MMC, Modern Methods of Construction, and then pre-fab or prefabrication is another word or industrialised construction. But in the pre-fab market, and I’m talking about in Australia specifically, there are probably two or three main categories that are proving themselves. There’s one category, which is your 3D Volumetric, which is your traditional LEGO block style construction, which is probably what everyone thinks of as modular construction. Shipped to site on the back of a truck has a singular unit. It’s craned off and lifted into place. Then there’s a second category, which is called a Kit-of-Parts or a 2D panelised system. That is more of a…let’s call it an IKEA flat pack, but for housing. That’s where components are premanufactured in a factory. They are put onto the back of a truck, but not as the finished building, sent to site, and then they’re assembled panel by panel to form the building. Then there’s 3D printing, additive technology approaches, which are starting to be trialed in Australia. There was recently a very successful project delivered by Aboriginal Sustainable Housing over in Dubbo. Really nice project to watch that go and succeed. That was with the Aboriginal Housing Office. That technology exists and is starting to make some waves, which is great to see. And then I suppose another category is engineered timber components like Cross Laminated Timber (CLT) and Glulam, so CLT or GLT (Glue Laminated Timber), which is used as almost like a post and plate technology system for commercial buildings and residential buildings as well.
So, they’re the four key systems in various depths of capability in the market and capacity. The volumetric market, there could be as many as 400 suppliers in Australia supplying some form of volumetric buildings. That ranges from the very high-tech, highly capitalised, high volume modular builders, all the way down to a cottage industry, Joe Bloggs from down the road, who’s got a small shed with three of his carpenter mates who are building tiny homes, which, again, has a good application. There’s a very large supply chain there, but with very different levels of capability.
In the Kit-of-Parts space, slightly smaller in terms of the number of players. But dare I say, I think the capacity is significant there because of the way that production takes place. You’re not producing the full LEGO block and taking up that full space in your shed. It’s more per panel, so you have a lot more, it’s a lot more efficient with your floor space, so you don’t need as big a factory.
So, out of that market at the moment, GTT is one of the players. There’s another handful of players in that market as well. Needs a lot more organisation on-site, but does result in more design flexibility than the other systems because you can organise your wall panels however you want with whatever design you want. So, that means your architect has more custom…well, I wouldn’t say it’s infinitely customisable, but it can be flexible. And also the cost, there’s a big cost reduction of a Kit-of-Parts approach versus a volumetric approach.
From some of the work that we did at School Infrastructure New South Wales, there were cost savings that we noticed between Kit-of-Parts system and volumetric, and it was considerable. It wasn’t a small amount, very considerable. Main contributing factors to that were transport efficiency. As I’ve mentioned, by having panels on the back of a truck versus a module, you can probably put about two to three times the building area per truck on the back of that truck. So, if you’re building 500 homes in regional New South Wales, that could be millions of dollars saved there in transport alone.
The structural system as well is more efficient, so you’re designing walls to be structurally loading where they need to be loaded. Some of the volumetric products that I’ve delivered in the past, we’ve had to over engineer just for the lifting of them. When they are lifted off the back of the truck, they go under quite a lot of pressure and torque and twisting. The engineering has to consider that. But then once it’s dropped into location, that structure doesn’t perform anymore, and someone’s paying for that. It’s kind of horses for courses. There are big differences between the systems. They have different applications. They all have a really good place to play in the Australian market. Clients probably at this moment in time don’t have that understanding of how the different systems should interact with their sites. And the, dare I say, the volumetric modular market is the market that probably makes the most amount of noise, has the most amount of players, and gets the most amount of attention. So that is naturally what people think of when they think of MMC at the moment.
Richard: Gotcha. Thank you for that, Pete. That was very insightful. Before we jump on to the next question that I have written down, I just wanted to tease out a little bit more. I know there’s always these concepts of time, cost, and quality. And you started talking about each of them, and I understand. I don’t really think there’s much issue with time in terms of how it’s shortened. Talk to me a little bit more about quality, and then I want to jump into cost because there are a bunch of naysayers in the industry, and it doesn’t mean that they’re right, but they have spoken about it being more costly. I’m interested to know in the whole development timeline if it is actually more costly. But before we get into cost, let’s talk about quality. How is the quality of these solutions compared to what is mainstream right now and what people are used to?
Pete: Yeah. I think first thing to point out is, obviously, my journey has taken me through all sorts of different technologies. I was definitely a volumetric convert probably back in 2019. Then we built close to 10-15 schools using different polymetric systems and suppliers. And it was on reflection of that delivery of that program that I suppose I started leaning towards Kit-of-Parts and understanding the benefits there. So, my narrative here is going through that journey.
The quality side from a Kit-of-Parts perspective, I think, can’t be matched. The way in which we produce our panels using machinery and robotics and automation means that the tolerancing on our wall panels is within submillimeter tolerance. If you take, at the moment, under the Australian standards, standard carpentry or concrete tolerancing, you’re looking at, on a good day, 5-10 mil. I’ve worked on projects where the concrete slabs and the form workers have been way more than that, and sometimes they’re deemed acceptable. I think from a quality perspective on actual performance of how you deliver your product against the drawings and against what is designed, I think Kit-of-Parts, no one can compete with it at the moment. I think the quality is so high.
The area where I think the MMC market needs to stand up and improve is people struggle to compare like for like with MMC and with traditional building. If we’re tendering on a project, a lot of the time, our product out of the box is extremely high performing and is extremely high quality. Then what happens is a client comes to you and goes, I don’t want that. I only need a standard volume home for $2,000 a square meter. Please, can you go and match that? From GTT’s perspective, our product is our product. We don’t change it. Whereas there are a lot of players out there who will downgrade their Modern Methods of Construction product that is using pretty low quality wall buildups, the EPS insulation preformed walls that they put in their volumetric boxes. So, from a quality perspective, there is quite a big variance, I think, in that volumetric market, and that’s because that doesn’t use machinery and automation. So that isn’t really industrialised construction. Without doing it a disservice, it is people in a shed building in a shed. You still have carpenters, Gyprockers. You still have people on the tools, somewhat on mobile platforms and mobile scaffolding, working on flashing details, working on this, working on that. And that in itself is where there is a productivity gain. There can be a quality gain if the supplier and the manufacturer is focused on that. But if the supplier is focused on just hitting volume, unfortunately, the quality goes down, and there are definitely suppliers out there who do that. There are opportunities that we’ve been involved in where I don’t think the client understands what they’re getting when they end up going down a certain route. So, I think from a quality perspective, the quality outcomes that MMC can achieve are very high, but the consumer needs to have an awareness of what the different systems are, how they result in different quality, and interrogate that. I’d encourage anyone who’s tendering or putting out projects using Modern Methods of Construction to put into their tenders performance requirements, really detailed requirements around what specification that system needs to meet. Because without that, you have this very big misalignment.
Richard: You’ve kind of answered it already, but is there anything more you wanted to say with respect to cost? Obviously, we spoke about time, quality. So, what about cost?
Pete: Cost, I think you made the point around there are people in the industry and naysayers in the industry who say it’s more expensive. Again, it comes down to the system, comes down to how you apply that system, how that systems built up. Is it a light gauge steel volumetric unit versus a CLT volumetric unit versus a timber stud frame Kit-of-Parts system? They’re very different. But largely, I think where the issue lies is in how clients, cost planners, QS (Quantity Surveyor) estimators in that arena, how they normalise and go through a pricing process to understand where the Modern Methods of Construction supply steps on and steps off. What builders tend to do, we’ve had this experience at GTT. I had it previously at School Infrastructure where there are outstanding performance builders. So, really good builders who get Modern Methods of Construction. They love it. They embrace it. They therefore don’t price risk on it because they see it and they go, this is helping me. This is de-risking my project, de-risking my program. Therefore, I’m taking money out of the job because it’s easier. Whereas some builders who are more, let’s say, traditionalist and largely maybe are the naysayers, they would go, I don’t get it. I’m not going to try and get it. And therefore, I’m just going to put risk dollars on top of it. And so, the price ends up escalating.
As a client, you need to work very hard with selecting the right ecosystem partners when you’re using MMC, whether that’s a good innovative builder with a good innovative manufacturer. Whereas if you have one of those who’s off, it can drag the whole thing into a bit of an area of dispute where people don’t agree with the pricing. Maybe an anecdote I can share is we’ve just been through a very big pricing exercise on a very large regional housing project, which we’re looking to do start of next year. We’re the manufacturing partner. We’ve got that contract in hand. That’s for 197 homes. The tender process with the way in which that’s been priced has been priced by four different builders, and there is a variance of $2,000 a square meter. And this is a simple single family-owned type product. This isn’t class two apartment buildings. So, why is there so much variance there? And that variance, I think, is down to what I’ve just talked about, which is you either have partners who get it, or you have partners who don’t get it. Great builders at School Infrastructure, some of the MMC partners there who got it. And there were others who arguably in meetings were like, I don’t want to do it. I don’t want to touch it. I think you could read that in their tenders because their tenders would come back overpriced.
But I think on cost, my thinking is it’s definitely more cost effective. On that project I’ve just mentioned there, based on that volume, there is no doubt that the approach that we’re taking is delivering probably a 10% to 15% saving for that client. Once we’ve delivered that first 197 as well, there is an opportunity that could come down even more.
Richard: Absolutely fantastic to hear. And in part two, we’ll talk about what the government can do to support the segment of the industry. But before we get into that, GTT specialises in prefabricated timber building solutions. Can you please talk a little bit more about that and explain to our listeners what that is?
Pete: Sure. So, the prefabricated timber building solutions or systems, effectively it’s a fully enclosed wall panel system within the wall envelope. So that includes your cutting, your glazing, your structural wall, insulation, the electrical services, the plumbing, and the internal lining. It’s a fully enclosed sheeted wall system. We use concealed connection systems to connect that into your substrate, which is another component we supply. If you’re thinking of a single-storey family home or a townhouse, you could have a concrete slab on the ground, which someone else would lay, and then we come and drop our walls in, or you can have a suspended deck system, which we prefabricated as floor cassettes. Those floor cassettes then interlock with our wall panel system. We then have, if you’re building a second storey, you have an intermediate floor cassette for that floor, and then you have wall panels again followed by a roof cassette. All of those components are timber based. So GTT in the name, Green Timber Tech, we’re part owned as well by Pentarch Group, who’s a very large timber player in the Australian market and, to be fair, overseas. We have a very strong supply chain ecosystem within our business in the softwood and hardwood sectors. Our systems are very much focused around timber.
We’re very passionate about timber and think that as a material, the carbon benefits of using timber, I think, can’t be ignored. Now might not be the time, but my view on the support around light gauge steel at the moment is great. There’s got to be other technologies in the market, but I think it’s been unchecked at the moment. And the narrative around, yes, they can be reused is good. I do like the concept of a circular economy and reusing light gauge steel frames. But in practice, I’d like to see that at the moment why we’re very focused on the timber area. So that’s really our system. We can integrate CLT (Cross Laminated Timber) and GLT (Glue Laminated Timer / Glulam), and we do intend to do that. There are some projects coming up where we might integrate floor systems, which would be CLT based and roof systems that would be CLT based with our wall system. So, the beauty of utilising a panelised approach is you can still go fairly conventional to a certain point, and then you can step us on for a little bit.
You might take a four-stoery apartment building. You might still do the whole core out of a concrete structure, and then we just step on to provide infill walls, wrap the facade, things like that versus volumetric where you need to have the whole system delivered as that solution.
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Richard: When we were preparing for this episode, we did start talking about what was happening overseas. And obviously, I know you’ve done some work overseas. I’m interested to know what is happening overseas and what markets or what methods are being used overseas that perhaps Australia could adopt.
Pete: Yeah. Overseas, there’s a lot of different markets with a lot of different areas that they’re exploring. Canada is doing some great work in the Modern Methods of Construction space at the moment. They’ve got very similar to New South Wales and Victoria, they’ve gone down their patent book route where that can result in repeatable designs, which manufacturers can get behind.
I know Canada has got a MMC mandate within government now on government projects. That could be something we could learn from maybe. I think the difference is in Canada and in Europe. So, obviously, Europe is known as probably being the powerhouse for MMC globally, mainly around the Scandinavian countries and Northern Europe, so Germany and those areas. And the alignment with Canada is they have bad weather and cold weather. It’s same with the UK where I’m from, so I can vouch for that. The bad weather means that they might only have four to five months of the year where they can build, especially in Sweden and Finland. So, they get forced into using off-site construction. That’s why they have that local context which drives them towards it. Whereas Australia, obviously, weather’s a lot better here. And the market here is so fragmented, to be fair, because of the, I don’t know if it’s geographical. I’m not sure why the market is so fragmented, but you have state versus state issues, again, where UK, Canada, they don’t really tend to have that. They dare I say pull together. I think the states here have this rivalry approach. So, you have different states doing different things, which is interesting.
In Europe, at the moment, there’s a lot of movement in those northern Scandinavian regions. The UK has gone through a bit of a rough time of late. There have been probably in the last three to five years, I wouldn’t know how many builders that have gone under, MMC suppliers. Sorry. Most of them volumetric. Probably the biggest name is the TopHat demise, which was a great shame. They were building some really good projects and had some great technology, but it comes down to one of the major investment cases behind these businesses, which is pipeline. And if you can control and have your own pipeline in house, which TopHat started off as their own developer. That’s what their bread and butter was. They were a developer first, and the MMC component was something that grew from that.
Unfortunately, I don’t know the reason, but I’m assuming maybe that outgrew around development. It’s never good when you see the demise of some of these businesses, and in Australia it’s not any different. There’s been some large-scale demises of big names and big suppliers who’ve come and given it a go. I think that’s something which everyone needs to learn from. What are the learnings from some of those failures? And, certainly, from GTT’s perspective, we’ve got our eyes very focused on what we think has gone wrong in a lot of these businesses globally overseas and in Australia, and how to make sure those pitfalls are avoided. But also learning from the good parts of those stories, because some of those businesses have really good successes and really good stories. In part it’s making sure those aren’t forgotten about as well.
Richard: Great. Let’s shift gears and get into the second part of the session, in terms of educating government and what government needs to know to support or incentivise this space. I suppose based on your experience here and overseas, and it sounds like obviously many in New South Wales, what needs to happen in Australia for the MMCs to become mainstream?
Pete: It’s somewhat maybe, I don’t want to repeat myself, but the commentary around knowing systems and what’s out there, I think government at the moment have a challenge on their hands to educate themselves and get up to speed with the technologies. I think there is a huge amount of political noise and gesturing or whatever you want to call it for “I’m the first one to talk about MMC, and I want to use MMC in housing here and housing there.” My view at the moment is they need to get down to basics and start delivering. They need to identify the different technologies and understand those different technologies exist and how to use them, where to use them. And we’re not saying GTT’s Kit-of-Parts is the only system that they should be looking at. Every time I speak to them, it’s let’s look at all the technologies and go and pilot them. Go and test them. Go and throw spaghetti on the wall and see what sticks. That’s probably the nonscientific way of saying it.
That’s effectively what I think needs to be done to start bringing this into the mainstream. Because to attract investment, it’s so hard. GTT, the process that we went through, the School Infrastructure New South Wales program, the QBuild Modular Housing Program, Victoria Program, there was programs in every single state that was focused on MMC, which all of those sound bites and all those commitments were put into investment decks. You take them around, present them, everyone loves them, goes cool. That’s a good investment case. But you scratch beneath the surface, and there is no commitment there. It’s just noise. One by one, those programs will shut up shop. The School Infrastructure New South Wales one, which was very close to my heart, that one disappeared. The QBuild program hasn’t closed up shop. It’s still going. But, dare I say, they’ve not got the opportunity to continue to improve because I suppose there’s quite a lot of pressure on them from a dollars and value for money perspective, and I think they’re scared to do the wrong thing. So, there’s a bit of tension there.
So, I think at the moment, the government need to identify the technologies, allocate budget towards each of those technologies, and find a project, and go and pilot them. Fern Bay Public School at School Infrastructure was our first pilot of the Kit-of-Parts. Sorry. We’d already done the volumetrics. But from a Kit-of-Parts perspective, it was we just went and grabbed that project, ran a pilot on it. You then learn from it. You then run a second one. You then learn from that. Run a third one. And then by the time you’ve done the first three, you have a pretty big dataset to learn from when it comes to quality, cost, time, and you can then start proving that up. And those three in the housing market don’t take long. Those could be 10 single family homes somewhere in mid New South Wales where there’s flooding at the moment where they desperately need housing. actually use it in an area that needs it. No one’s going to be upset about that. I think they need to get on and start piloting.
I think Homes NSW have had a $10 million MMC commitment a couple of years ago. It’s taken them too long to get that done. I believe those buildings are under construction now, which are volumetric granny flats. So, there’s a few like that – one where the timing of that has taken far too long. You’re telling me…I don’t know how many granny flats there are, let’s say there’s 20 granny flats. 20 granny flats has taken you two years to organise, tender, and award, and then now actually build. If you look at what that’s solving in terms of housing on the ground, that’s 10 one-bedroom granny flats. That’s nothing. We’ve got hundreds of thousands we need to build. Let’s get real about this. That’s pretty underwhelming.
And I know there’s movements and initiatives in place there to continuously grow that program, but I would really encourage them to maybe find a bit more speed and a bit more impetus around it.
Richard: Great. Well, the final question for me to you today, I know we have got through a lot, is how do existing project delivery models need to adapt to leverage the benefits of MMC?
Pete: This links into your contracting structure, and it maybe links back to that point I made around the commercials and how unless you know how to structure these projects, sometimes the assumption is that they’re more expensive. In most cases, it is down to how they’re structured. So, if you go with the traditional design and construct contract, which is a very vertical model, you have client, you have head contractor, and you have subcontractor. If your subcontractor is doing 60% or 80% of the work as an MMC supplier does, is it right that the head contractor then takes a very large clip of that on the way through to the client for what they see as risk. But like I’ve said, it’s not risk. It’s de-risking it for them. Should that be challenged, and should that be more of an ecosystem approach?
This is where, again, a lot of the literature in Europe and in the UK with Project 13 is a kind of projecting contracting approach goes. It’s more of an integrated model where the client takes on more “risk”, because it’s not actually real risk, but the client takes on the risk. They free issue components with guarantees, obviously, from the suppliers, but they free issue those to the head contractors, and then the head contractors assemble them. That’s one way of scripting that margin on margin out of the MMC approach. But also, in general, the delivery models need to be changed so that if a head contractor isn’t that strong in this field, is maybe the contracting entity, the MMC supplier. And then the contractor becomes part of the manufacturer’s contract. Not saying there’s a right answer in there, but I know there’s lots of different government agencies with lots of different approaches.
Commonwealth Bank have just brought out their new prefabrication financial product, which covers up to 60% of your premanufactured value, and then 80% for certified manufacturers, which is a really great initiative. Really happy to see that. And they’ve also started developing up a contract to go alongside that. That contract focuses on payment claims and release of payment against the prefabrication component. It doesn’t probably deal with that margin-on-margin commercial thinking. They’re probably more thinking around how physically can the mechanics of a contract work to allow MMC. Whereas what I’m more leaning towards is how as a client do you structure it best to not just be paying margin-on-margin, and how do you make it as efficient as possible without taking on undue risk?
At the moment I think there isn’t an existing delivery model that works that well. I think most clients at the moment are thinking around how can we change the existing DNC (Design, Novate and Construct) contracts to make this work.
Richard: Fantastic. Look, I know we’ve got through an enormous amount today and I’ve certainly learned a huge amount. Just before I close off, is there anything further that you wanted to leave our listeners with?
Pete: Yeah. I think I did a presentation a while ago, which I think it had some ducks. No, it had some chickens in a field, all heads down, just clucking away on the floor. And I think that’s the construction industry. We’re all heads down, bums up, feeding ourselves and thinking about how can we feed ourselves, and it goes back to that heavily capitalistic kind of industry that we’re in. I think what we need to do is more heads up and working together and getting more into a line and leading ourselves down a track of change and having a momentum and a snowball effect build out of the moment. Some clients try to do that and then they don’t quite get it. So, I think if there could be some kind of alliance formed between clients who are trying this, that could be a great idea. You might have developer A, B, and C who arguably are normally competitors, but for the greater good of knowing that they can get more price certainty, more cost certainty, and better delivery, and it helps change the industry. Maybe there’s a way of getting those together. I’m not sure that will happen. I think that’s very wishful thinking. But, yeah, I think it’s everyone who wants to try and get into this industry and start using it in their projects, reach out to myself and anyone in this industry. We’re all very keen to see it succeed. We’re all here to help.
Richard: Great. Well, look, I’ll definitely put the links to your websites and the various projects. And, listeners, I encourage you to jump on and have a look at the projects that you’ve been involved in. Certainly, you’re a wealth of knowledge, and I hope that people are able to connect with you and you’re right, follow some of your recommendations. Because even just educating myself more broadly on this opportunity, I’m convinced it’s what we need to be doing. It’s outside of the box thinking that we’ll be able to solve the housing crisis, but also build all forms of real estate that are really fit for purpose and fit for the future. I’ll leave that for everyone today. But as I said, please do reach out to Pete, and I’m sure he’ll be able to discuss things further with you. Thanks very much. Bye.
I hope you enjoyed that fantastic session from Pete. I certainly learned an enormous amount, and I hope you did too. The main findings that I would like everyone to take from this podcast session are as follows.
The first finding, I thought, which was amazing to learn a little bit more about was the fact that there’s a number of different technologies that the public and private sector need to understand in further detail. There’s certainly an education piece that needs to occur, and part of that education piece is to learn where to apply them and how to use them. I think that once that occurs, the funding will start to come because it’ll be much easier to appropriately price the risk to understand these different forms of technologies.
The second point that I would make is listening to Pete talk and then also before the podcast talking to him and then afterwards too. It’s clear to me that there’s different people in the industry that are viewing Modern Methods of Construction quite differently. I think that the more you understand it, the more accurately you can price the risk. Conversely, if you don’t understand it, you’re incorrectly pricing the risk. And certainly, that seems to be perhaps leading to why there’s a much larger increase in cost than there should be.
The final point I’ll make is the role that government has to play in this space. Certainly, it can be a sponsor. It could do pilot projects with this to demonstrate to the market that it can, in fact work, using either public land, public funds as a demonstration project, which will then show the private sector how this could work. And the private sector will then be able to follow at scale once they’re able to appropriately price the risk. And then allayed to that also is the role of incentives within the planning or the building scheme as well as allowing innovation in the legislation, particularly the National Construction Code. I know that right now, and as Steve (Sfendourakis of Stemcon – Season2 Episode 21: Breaking Ground: Tackling the Cost of Housing Delivery in 2025) taught us in a previous podcast, the legislation seems to focus and reward certainty of innovation. I’m convinced that to move productivity forward in this sector, we need to have legislation that promotes more innovative techniques for the delivery of dwellings and the delivery of real estate over the next decade or two decades. That’s a critical role that the legislation can play. And importantly for government, it’s also one that does not cost money. Given that I’m hearing consistently from various state governments about the huge budget deficit that everyone has and the debt that we’re in, this is something that could move the dial very quickly. That does not cost money as far as I can see it.
Anyway, I hope that is food for thought. Have a lovely day.
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