Posted: January 4th, 2025

A Comparative Cost Analysis of Modern and Traditional Methods of Construction in Uk

INTRODUCTION

This research is ‘a comparative cost analysis of modern methods of construction and traditional methods of construction in UK’. The management of costs in any industry is an essential for its survival as well as its growth. In the construction industry however there is always the case for financial disasters Simon Jackson (2002), or fluctuation overheads due to the level of activity or production capacity of the construction firm Eksteem and Rosenberg (2002). According to National Audit Office (NAO) (2005) the construction industry contributes some 10% of the GDP. Understanding costs is very important in the construction industry and this study, associates costs with the modern and traditional methods of construction and reveals how costs react to each of these methods.

1.1 Background of study

Arguably, construction costs are constantly on the rise in the UK. Even though this is the case, the construction methods available in the Industry: Modern Methods of Construction (MMC) and Traditional methods of construction (TMC) have a major impact on the costs, their affordability and longevity. Kozlovska et. al. (2015) in his paper, supports modern method of construction (MMC) as a way of providing efficient project management process, this is because in his opinion it produces better quality products while saving time and cost. Schoenborn, (2012), Kawali and Hawage, (2016) agree that there is an effectiveness in the management process of modular construction that’s allows for saving of costs compared to traditional method of construction. It has been asserted by the National House-Building Council(NHBC, 2012) that one of the basic attractions of MMC is that, houses get to be delivered quickly and cheaper compared to the long process that construction takes in the traditional method. Yet, the Building Societies Association (BSA, 2016) hasn’t come to the agreement that the modern method of construction is cheaper. In a recent report BSA (2016) argued that “modern methods of construction tend to be more expensive apparently due to established techniques but the ranges overlap”. The National Audit Office (NOA 2005) and Kawali and Hawage (2012) in their reports support BSA opinion by suggesting that there is a huge investment that has to be considered before a homebuilder can venture into modern method of construction especially for the modular services in this case the traditional brick and block is considered to be cheaper. The construction industry remains in the limelight for the massive contribution to the economy and averting housing insufficiency in the country, and with the ever increasing population, there is need for more houses and a system that provides affordable houses within a short period of time.

Alternative forms or modern methods of construction (MMC) have a long history in the UK. This method of construction was introduced in the post-war period to provide accommodation quickly and easily to the masses and it has forcefully made its way into the limelight. “…I think that for the first time what you could see is modern methods of construction being pushed because there is no alternative…” (Building.co.uk viewed 29/05/2017) Through the years modern methods of construction  has been combined with traditional method of construction, but in recent times it has become more of a necessity than an option, due to the rise in the demand of houses and housebuilders trying to supply a substantial amount of houses for the growing population. A research carried out by the National Housing Building Council (2015) that showed that “…98% of large and medium-sized house builders and housing associations have used or considered at least one form of MMC in the last 3 years”.

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1.2 Research Rationale and Knowledge Gap

The modern and traditional methods of construction are being used nowadays with the modern methods leading the traditional, in recent times this has caused an acceleration in the delivery of houses, but the cost of construction keeps rising much more with each passing day. National Audit Office (NOA 2005) is of the opinion that the higher the building, the better it is for the modern methods of construction “higher buildings favour modern methods of construction because costs rise faster for brick and block than for off-site manufactured elements”. In recent time, most housebuilders and developers have started to use the modern method of construction, this was meant to be cheaper, but it has been observed that the prices are still going up., Parliamentary Office of Science and Technology (2003) opines that “…some house builders argue that MMC is less expensive than traditional methods, industry sources indicate increased costs of around 7-10%…MMC housing is faster to build, reducing on-site construction time by up to 50%, and thus reducing labour costs”.

To determine if there is a cost variation and why, this study aims to analyse the common principles that allow for a cost variation in the methods of construction; some of these influential variables are the price of labour, material or methods? At this point, I am not implying or giving the opinion that in the solution for cost effective houses, the traditional method no longer has a place, this is about UK, a developed country, which is not accepting the change and the innovation in construction like Europe and the rest of the world. The Building Societies Association (BSA 2016) succinctly stated that the future housing supply improvement should be updated to something more symbolic of the innovative, efficient, world class housebuilding industry that we want.

For this reason is why this study is done to take an in-depth look into the cost analysis of modern methods such as: timber frame, concrete frame and steel frame. The traditional methods used in this study is brick construction in UK. This study covers a period of 10 years 2007 to 2016 which is a present day cost analysis on the prevailing methods of construction in UK giving a detailed cost variance. Therefore, the author hopes that the outcome of the research will give a better understanding of the prevailing factors affecting the costs of modern and traditional methods of construction.

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1.3 Research Aim 

The aim of this study is to examine the extent of cost differentiation in modern and traditional methods of construction in terms of the construction costs of the projects: preliminaries, substructure, superstructure, external works/services and contractor overheads including the cost of labour and materials.

1.4 Research Objectives

1. To examine if modern methods of construction (MMC) involve higher construction costs than traditional methods of construction (TMC).
2. To select which method of construction influences variation in UK construction industry.
3. To develop a framework that allows the modern methods of construction to be affordable as well as being timely.

1.5 Research method

The research on that this paper reports is designed using the principles of explanatory sequential mixed methods, where quantitative research is conducted, analysis of results and explains results in more detail with qualitative research (Creswell 2014). This research represents the cost analysis of modern methods and traditional methods of construction in UK. The study therefore has as its first task data collection via structured and unstructured survey, this is a pragmatic approach to the research and positivism would be achieved by testing the various methods of construction by collecting data from a total of 400 construction projects gotten from BCIS which would be systematic- randomly selected from the available completed building projects in UK. A person-interview survey of some project managers and academics with experience in construction projects by a trained graduate and furthermore deducing a solution to the cost variance in modern and traditional construction methods. This is a pragmatic approach to the research and the study aims to achieve positivism by testing the various methods of construction.

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1.6 Scope and Limitations of the research

This dissertation only considers factors that lead to a rise and fall within construction costs and how this affects the methods (modern and traditional) of construction. Consequently, the final outcome of the research would be strictly within the confines of the information derived from journal papers, books and webpages that cover topics focused on modern methods and traditional methods of construction and construction cost as well as information gathered from interviews and questionnaires conducted by the researcher.

1.7 Layout of the dissertation

2.1 Introduction

In the previous chapter, a brief account was given about the UK construction industry and the gradual shift from the traditional method to modern methods construction in the UK. When reviewing the construction process two areas that regularly occur are: cost and time (Cooke and Williams 2004). Construction projects are immensely capital intensive and require a huge sum of investment and this makes cost control a very important factor to the contractor and client (Olawale & Sun, 2014). The construction industry contributes largely to the economy but is also associated with high costs. To fully cover the scope of this research, this chapter investigates different aspects of relevant literature relating to the history of UK construction industry; the modern and traditional methods of construction and its advantages and disadvantages to the construction industry; the modern or traditional building materials and their characteristics; what method of construction that allows for cost variances within itself and why; the factors that affect the cost of construction and construction cost analysis, the sustainability of the  method of construction and how this reduces cost. Furthermore, this chapter compares the MMC with TMC in terms of the opinions given by various writers regarding if the MMC or TMC allows for costs savings; what method of construction is faster and not so expensive; are the buildings which are cheaper and faster relaxed on durability; is there an acceptance/gradual setting aside of regulations in the construction industry.

Consequently, the findings gotten from this literature review are used later on in the research to act as a benchmark to analyse data gotten from BCIS and interviewing construction professionals who have used Off Site Manufacturing (OSM), Modern Methods of Construction (MMC) and Traditional Methods of Construction (TMC) on their site. However, owing to the industry interest, wide-spread concerns and home builders perceptions about the cost of modern methods of construction, rather than detailed evaluations of the cost implications on the various methods of construction, most of the literature that has been referred to are somewhat limited; restating the need for a more in-depth research on the aspects of modern and traditional methods of construction with which this work is concerned and examined in this research.

2. Overview of UK construction Industry

“We are … very conscious that we have not built enough homes in this country year on year for many decades … We have been very clear that we want to be very ambitious. We want to deliver homes across all tenures. We want to drive home ownership up as well. Working to deliver one million homes in this Parliament is a target we should be very ambitious about, and go beyond, if we can.” Brandon Lewis MP, Minister for Housing, 22 March 2016.

Presently the UK housing-business is undergoing some challenges such as; under supply of good quality houses (NAO 2017), mismatch in nature, minimal sustainability and cost effectiveness (Pan and Goodier 2012). However the housing shortage has provided room for a reformation in the construction industry and the need to prepare for the future by fully exploring other methods of construction and it’s potential. The government is looking to hit a target of one million homes by 2020 and this is in response to research which concluded that a total number of 300,000 houses are needed each year (House of Lords 2016). The National Audit Office (NAO 2017) states that 2015 had a total number of 23.5m homes in England, £286bn was estimated to have been spent on housing in 2015-16 and the government aims to deliver 1m number of homes by 2015-2020. HM Government (2017) conducted an investigation to review the legislation and implementation of 1m homes in England by 2020 and discovered thematic areas from planning to burdens on SMEs.

On the other hand, the construction industry is susceptible to the highs and lows of the economy. (Pan et al. 2006) has stated that time, cost, quality and productivity are the drivers of the construction industry. If these three drivers are available in any method of construction being used, there is hope for the UK construction industry. Therefore, CITB (2015) opines that with the current housing demand, there should be futuristic solutions with key factors such as: people, sustainability, technology advancement and leadership for long term success. The UK housing markets can be characterised with housing demand, housing affordability and homelessness; between 2001 and 2010, an average of 144,000 new homes were completed annually: 100,000 fewer per year than in the 1970s (NAO 2017), the housing crisis (House of Lords 2016), the amount that first-time buyers have to borrow to buy their first home has risen from 2.3 times average income in 2000 to 3.2 times income in 2014 except in London where prices earnings rose with the rent (NAO 2017). At the end of March 2016, 71,500 homeless households in England were in temporary accommodation, up from around 48,000 in 2010-11 (NAO 2017).

In another report by (NAO 2007) stated that the government has set sustainability standards for the construction and refurbishment of buildings on the government estate, but these are not being met and CITB (2004) stated that, for there to be sustainable development what, how and where to build is the main focus and the challenge beyond legislations and regulation in the construction industry should be ‘…changing the way the industry builds rather than what it builds…’. The construction industry affects the economy of any nation, society and environment and due to its nature, sustainability is of utmost concern, therefore more nations are striving to achieve sustainability in construction (Mustow, 2006). In the UK however, through policies and initiatives from the government, progress is continually made on improving sustainability in construction (DTI, 2006); (Ogunbiyi et al. 2014).

Image 1.1: Long term drivers, implications and responses affecting the construction industry. CITB (2010).

The construction industry is known for delivering building projects over the initial budget estimate almost all the time (Jackson n.d). The conventional method of construction in UK is TMC and the growing use of MMC, the present phase is a mixture of TMC and MMC. In the history of British construction technology prefabrication has been in existence since the eleventh century (O’Neille and Organ 2016), offsite construction is not a new concept in the UK construction industry (Pan et al. 2004). However, offsite construction is now being established as method of construction in the UK even though the use of modular construction is widely accepted and used in Europe (Lawson et al. 2012).(Taylor 2010) also noticed that the UK construction industry is slow in acknowledging and using OSP techniques.

3. Traditional methods of construction (TMC)

In TMC, there is a high level of waste in materials such as packaging, timber, plasterboards and insulation (Waste and Resources Action Program (WRAP) 2007). NOA (2007) cited Kate Barker (March 2004) who stated that traditional and block methods in construction remain cheaper… the time saving available do not provide a compelling financial reason to switch production. 

Offsite construction is perceived to be more expensive than traditional construction Lusby-Taylor et al. (2004) reported that though less volatile when compared to TMC, MMC would not necessarily reduce the time cost of construction. There is an observation by those in the housebuilding business that traditional methods of construction are not as expensive as offsite methods of construction are (Birkbeck and Scoones, 2005).

Concrete and stone products have played and are still playing a very important role in construction in terms of adequate supply this has been analyses and investigated at least five times by the Competition Commission and its predecessors, with reports on timber the most competitive segment, asbestos products, and steel which is being used in various sectors apart from construction and is viewed as oligopolistic since 1967 when British Steel Corporation was created Nadim and Goulding (2010). Structural metal products can now be classified as low competition. (Lowe 2011). In general, comparative costs between traditional methods of construction and MMC on a project basis, cost still remains the dominant factor in specifications and has been a key reason for the slow uptake of many types of MMC in the UK.

‘It is expected that the use of MMC is likely to grow over the next 3 years; 45% anticipate that it will play a greater role in their organisation’s construction processes. Only 3% of those surveyed expect the role of MMC to decline’ (NHBC Foundation, 2013).

MMC requires few trade operatives unlike the traditional method of construction (Kolo et al. 2014).

(Kolo et al. 2014) agreed with the benefits of OSM regarding speed, quality, and quantity of housing delivery emphasising the benefit and challenges of MMC to shorten the timescales of a project, producing and ordering modules in bulk to reduce cost, reduction in the transportation of manpower and machinery, better onsite safety and better overall product quality, improve productivity and is also sustainable. (Waste and Resources Action Program (WRAP) 2007) in this report it was certified that MMC leads to reduction in construction waste, it identifies with the current use of MMC and its future potential. The challenges include the intensity of project planning and engineering, limitations in transportation of modular products and the initial high capital outlay (Kamali and Hewage 2016).

(Lawson et al. 2012) stated that a range of design opportunities can be achieved through the use of steel and concrete frame modules for mixed –use commercial and residential buildings creating stability that can be used in modular construction for high buildings. c examined the supply of MMC is high and its ability  to meet the markets demand but supply is limited due to supply being made on bespoke basis.

2.5 Offsite manufacturing in construction

In recent times, the construction industry is looking to be lean in terms of improving its supply chain and sustainability (Jorgensen and Emmitt, 2009). This process of introducing lean methods into the construction process comes with its own set of risks (Hook and Stehn, 2008). Lean methods in the construction process can be understood first from the supplier’s perspectives and how the lean techniques affect their performance and supply of construction products Eriksson (2010), (Ogunbiyi et al. 2014).

Perhaps, the need to meet the growing demand for houses, faster project delivery time and cost effectiveness seem to be driving Offsite Manufacturing (OSM) in Construction. Offsite construction can be classified into four: component and subassembly, volumetric and non-volumetric, preassembly and modular building (Wei Pan and Chris Goodier, 2012). Manufacturing of this sort has been around for a long time, and in recent times, the construction industry has made a major move in considering OSM. However, this has not always been a smooth sailing experience. For example, Peabody Trust’s Raines Dairy had an extensive use of prefabricated materials that resulted in cost and time overruns that couldn’t have been envisioned (Building.co.uk, 2004). Taylor (2010) opined that offsite construction is paramount to the efficiency and sustainability of the UK construction and civil engineering industry. The Construction Industry Council (2013) in their study stated that ‘…in terms of their capacity, house-builders claim that given time to resource they will be able to ramp up to undertake a build rate of 130,000 – 150,000 new homes a year in England using conventional techniques (against a current rate of around 100,000)’.

Offsite Manufacturing (OSM) has been discovered to be a means of reducing the demand of housing due to the faster speed of delivery compared to the traditional methods of construction (Jack Goulding and Mohammed Arif, 2013). There is a design process presently being used in construction manufacturing, this must be re-engineered to improve and increase the benefits that can be derived from the manufacture of construction goods. (Mohammed, John and Farzad 2012). The construction industry is also recognized as a project-based industry. Its distinctive features are related to the uniqueness of each project, including design ideas, the construction site, the production set up, material supply, management and organization, and the construction process as displayed throughout the history from the construction of the great pyramids in Egypt 5,000 years ago to the Burj Khalifa (Nawari O. Nawari, 2012).

According to National House Building Council (NHBC) Foundation (2013), the top barriers to the use of full volumetric or modular construction mentioned by housing organisations as well as large and medium house builders is a lack of suppliers and high capital cost. It can be assumed that added to the cost, the consumers of OSM do not appreciate its characteristics, instead, they create bespoke OSM products thereby creating massive waste causing lack of sustainability. The cost of OSM is deemed a significant disadvantage. Also, currently the supply of products has been limited due to OSM products like traditional housing especially those that are commonly used by developers (Venables et al., 2004). For OSM to be sustainable, the cost gap between the OSM and traditional construction must be reduced and the redesign of housing should better suit the specific characteristics of OSM not vice-versa (Venables et al., 2004). This paper discusses the feasibility of effective housing delivery using OSM and the benefits of OSM (Kolo et al. 2014). (Generalova et al. 2016), (Kamali and Hewage 2016).

5. Differences in the methods of construction

One of the sectors in the UK is the construction industry, which is characterised by an industrial sector that is dispersed and possesses few barriers of entry (OECD, 2010; Ball et al., 2000). This paper confirmed this study by the production of concentration ratios (Mahajan, 2006). (Lowe 2011) in this paper agrees that in the criteria of the top (5 per cent) the construction industry comes in in terms of most concentrated sector comes in as the fourth least, and in the league of top 15 firms (9 per cent), the industry obtains the least position in the third place.