Trends in Modular Construction

What does the latest trend in building mean for fenestration?
John Nolan
May 2, 2019
COLUMN : Legal | Codes & Standards

There is a general consensus that the U.S. is in the midst of a “housing crisis.” Reports from the Census Bureau, National Association of Home Builders and research-based entities such as the Joint Center for Housing Studies of Harvard University, report that multiple factors are at play. In its 2018 State of the Nation’s Housing report, JCHS concluded that homeownership rates among young adults today are even lower than in 1988. Demand is outpacing supply. Cost increases due to labor (a shortage of which is traced to the Great Recession) and land use regulations have been major contributors.

This is contributing to the buzz around modular construction—for single- and multi-family residential and commercial—as an industry sector to watch. Modular construction is a broad industry term but, in the context of this article, it is essentially the offsite building of portions or units of a larger structure which are then shipped to and assembled onsite to become “permanent.” Components or units are essentially “manufactured” within or onsite of facilities that are very much like manufacturing plants. 

This modern manufacturing technique is seen by some state and local governments—in New York, California and Silicon Valley, in particular—to be a feasible alternative to address some of the inherent costs associated with traditional construction methods. Notably, Amazon and Google have both recently invested in modular construction.

Historically, however, modular has occupied a modest percentage of the overall market—in 2017, NAHB reported the number was roughly just over 3 percent. Projections point to an increase in this number, but not moonshot-like progress. 

From the fenestration industry’s perspective, the immediate future of modular construction may not look too different from the current and predominant traditional methods, given its modest growth. The standards and code requirements applicable to the manufacture of fenestration products should not change the overall approach to the design and manufacture of products. 

Codes and regulations

Modular construction still must follow applicable building codes. The International Code Council and the Modular Building Institute issued a joint press release in 2017 to announce the development effort toward instruction of local building inspectors on issues pertaining to modular construction. Although code inspection methods may require some adaptation, the effects on fenestration may not be a tectonic shift. 

From a legal perspective, if there is an increase in modular construction customers, it may require states to consider some additional regulation. California is an example. The state refers to modular as Factory-Built Housing, defined as “residential structures manufactured wholly or partially offsite, in sections or building components, which are assembled at the installation site to form part of, or most of a completed unit,” according to the Los Angeles Department of Building and Safety. California’s Department of Housing and Community Development regulates FBH through a comprehensive regulatory system involving plan reviews and inspections.

 In another example, Illinois has the Modular Dwelling and Mobile Structure Safety Act regulated by the Department of Public Health. And, several states have adopted the Interstate Compact on Industrialized/Modular Buildings. State regulatory mandates and processes will likely increase as modular construction becomes more mainstream. It is important to monitor these regulations for their potential impact on the fenestration industry. 

Supply chain implications and quality assurance

Those in the fenestration industry should also review the potential impact on the transactional relationships in the supply chain. To the extent that modular customers require supplier agreements, stakeholders should consider how relative risks, such as potential demands for specific warranties, demands for indemnity and insurance, are handled. 

The legal effect of these contractual agreements is sometimes determined by state law. The construction of modular units in one state which are then shipped and assembled into a final structure in another state may create some uncertainties in this “interstate” process in determining which state’s law controls the parties’ transaction.

Benefits also are apparent from a legal perspective. The modular builder, who is one entity building in a specific manufacturing facility, becomes essentially a clearinghouse for the distribution of product literature and warranties to end users.
Quality assurance may also be streamlined in a way to decrease the variability of storage, handling and installation effects upon products. 

In traditional methods, the sub-contractor usually supervises the implementation of a manufacturer’s instructions, and there may be several different installers on a given project. In the modular context, it is easy to imagine a more consistent and even application of manufacturer installation recommendations, and AMAA and ASTM standards. 

Modular manufacturers may be encouraged to employ on-staff AAMA Installation Masters installers who perform and/or supervise the appropriate methods for installation and integration of products. The quality assurance associated with this process may be more efficient, if the process happens in one location rather than multiple locations throughout a construction project site. Documentation of this process could be more efficient and perhaps more complete as well. 

The consistency of this approach could also be a benefit to manufacturers that traditionally aren’t involved in the onsite implementation of recommendations. It is a rare occasion to see photographic records of installation taking place in real time during construction of traditionally built structures. One can imagine tightly monitored and recorded practices at a plant. Finally, better quality assurance and more accurate documentation could reduce the uncertainties faced in the field. It could also perhaps answer important questions prior to undertaking infield quality assurance measures, such as AAMA 502 testing.

Challenges

There may also be some challenges. Modular units with pre-installed fenestration will likely have pre-installed weather barrier elements such as water-resistive barriers and flashing. As such, there may be effects of the potentially unique stresses and deflection upon the structure and installed envelope elements that shipment and later assembly may pose. Also, accommodating potential variations in structural movement may require different suggestions for integration.

Like any slow change, the industry may not feel the immediate impact of this likely growing sector of the industry tomorrow. However, there are signals that modular construction may be increasing, which suggests the inevitable increase in regulation and changes in manufacturing-distributing relationships. Keep an eye on these changes to reduce potential exposures they may pose.  

John Nolan is an attorney with The Gary Law Group, a law firm based in Portland, Oregon, that focuses on legal issues facing manufacturers of windows and doors. He can be reached at 217/526-4063 or john@prgarylaw.com.