UTILE breaks down modular construction barriers with new consortium approach

by tanya_martins_2 | February 12, 2025 9:00 am

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Modular construction in Canada hasn’t come close to realizing its potential. Despite being heralded as a way to build housing faster to combat Canada’s affordable housing supply crisis, multi-residential modular construction only accounts for approximately six per cent of residential construction in Canada. So, what is holding modular construction back from mainstream adoption in Canada?

That’s what student housing developer UTILE[2] set out to learn in 2024 when the Montreal-based non-profit kicked off its first modular project, a 155-unit midrise complex in Rimouski, Quebec. UTILE launched the pilot project to see how the organization can make modular construction work effectively. What the finalist[3] of this year’s CMHC’s Housing Supply Challenge learned might surprise you, but thankfully, it can be successfully replicated for any type of modular housing development in Canada.

Challenges to widespread adoption of modular

Modular construction is specifically the production of 3D modules in a factory setting, which are then assembled like LEGO blocks on-site. This is a subcategory of prefabrication, which also includes 2D components such as walls.

While modular is faster than traditional construction methods, UTILE found that multi-residential modular construction costs around 10 per cent more than traditional projects and is perceived as riskier by construction stakeholders.

Consequently, the potential of modular construction – which enables project owners to shorten project cycles by approximately half and, therefore, build twice as many housing units per year – remains significantly underexploited. Without overcoming the additional cost and perceived risk, modular residential construction will not find mainstream adoption.

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What makes modular construction more expensive than traditional approaches

Through its pilot project, UTILE identified three reasons why modular construction costs more than traditional construction. To start off, modular-building manufacturers are currently focused on single-family housing with higher margins and lower volumes. From UTILE’s experience, however, this is problematic because second projects rarely proceed, which causes two new issues.

The first issue is that modular-building manufacturers will not invest to increase their production capacity and efficiency if there is no pipeline of guaranteed deals. Second, the experience acquired throughout the production chain during a modular project is not taken advantage of, so opportunities to reduce the costs of subsequent projects are lost.

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Adding to the challenge, legal responsibilities are poorly defined for modular construction projects. Standard construction contracts are poorly adapted to modular construction since multiple parties are involved, including those doing part of the assembly work in the factory and those working on site. As a result, UTILE found that manufacturers, general contractors, and subcontractors will increase their bids to cover their risks due to legal uncertainties in case of warranty claims.

Canada’s construction industry lack of experience with modular is another factor driving up the costs, according to UTILE. Architects, engineers, general contractors, and subcontractors lack modular construction experience, which in turn increases costs beyond traditional construction for two main reasons.

First, the assembly details of a prefabricated project are different from a conventional project and are unknown to professionals, general contractors, and subcontractors, leaving them to guess. Second, the stakeholders involved do not fully understand the scope of work to be carried out onsite. This leads to them substantially increasing the safety margins in their bids because they cannot accurately estimate the time and materials required.

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New consortium model for market certainty, improved efficiency, and cost-cutting

To overcome the three primary challenges holding modular back in Canada, UTILE has brought together a consortium of stakeholders – including a prefabricator, general contractor, architects, and engineers – with whom the non-profit will work to repeat several consecutive projects. This new consortium model from UTILE is focused on building industry partnerships with the goal of building more market certainty and improving efficiency with every project completed.

UTILE has also committed to producing at least one large-scale, multi-residential project (70 to 310 housing units) per year for the next five years. By committing to building several hundred modular housing units, UTILE is encouraging the prefabricator to invest in its plant to increase its efficiency and production capacity, which the non-profit sees as a benefit for the broader industry as a whole. To its knowledge, UTILE is the first real estate developer in Quebec to dedicate a guaranteed project volume to a prefabrication consortium.

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UTILE is also developing new contracts specifically for modular construction to clarify the legal responsibilities of each stakeholder involved – from the factory to the construction site. The goal is to help stakeholders involved in modular construction understand their legal requirements so they do not needlessly inflate their bid to compensate for risks that, in reality, are either mitigatable or assumed by another stakeholder. This will be done in an Integrated Project Delivery (IPD) mode to encourage collaboration between all involved parties to reduce project costs.

And finally, but definitely not least, UTILE is focused on cost reduction, aiming to cut the costs of modular construction by 10 to 15 per cent compared to traditional means. The non-profit will carefully document the costs of all stakeholders in the value chain to target measures and reduce prefabrication costs. Very importantly, this documentation implies that all of the involved players will be transparent about their costs.

UTILE is also focused on educating subcontractors who are bidding on modular projects so they can understand the exact scope of work to be done. The non-profit is developing plans and specifications – including an explanatory video via BIM modelling – so it can predict the cost of each subcontractor to the nearest dollar.

In addition, the key learnings from UTILE’s modular pilot project will be the subject of a white paper that will be written by two external firms (MNP and Macogep). The white paper will be available this fall and be widely distributed within the construction industry so that other developers can adopt modular construction for both their own benefit as well as the benefit of their communities.

Without a solid economic case, modular construction will not be adopted by developers on a wide-scale basis. However, UTILE’s new consortium approach provides the framework needed to overcome the hurdles and lower the costs of modular construction. Only that way will modular construction be able to live up to its potential and help Canada overcome its affordable housing supply challenge.

To sign-up and receive, free of charge, UTILE’s white paper documenting key findings for modular construction, which will be available this fall, contact: modular@utile.org[8]

Source URL: https://www.constructioncanada.net/utile-breaks-down-modular-construction-barriers/

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