Modern Methods of… Asset Management

Although off-site construction (also known as “modern methods of construction” or MMC) is enjoying a surge of interest from the construction industry and more widely most of this interest is focused on the construction phase. However, due in part to wariness among lenders in relation to lending on standard residential terms, many of those using MMC are organisations who will hold a portfolio of MMC properties, such as private rental sector (PRS) landlords and social housing providers. These MMC properties will need to fit into those organisations’ wider asset management strategy.

But surely this is just standard property maintenance? Yes… and possibly no.

Who cares?

• the property owner – they want to ensure that the asset they have purchased retains its value, both in terms of what they paid for it initially and its relative position against other comparable properties (both MMC and traditional construction)
• lenders – having lent money on an asset or assets of a particular value, lenders will want to ensure that their security is properly protected and that, if they ever needed to enforce that security, there would be sufficient value in the asset or assets to repay the loan
• insurers – insurers will be keen to ensure that the likelihood of a claim is not increased by failure to carry out proper maintenance e.g. damage caused by trespassers as a result of failure to maintain the security measures in good condition
• occupiers – measures are expected requiring rental properties to meet certain standards to tackle the number of tenants living in poorly maintained properties.

What’s different?

*  What is the design life of the MMC elements (including any components)? In relation to blocks or properties in particular, how does this dovetail with other major refurbishment work that will be needed during the life of the building e.g. lift replacement?

*  Where there the manufacturer did not install the MMC properties, who is responsible for rectifying defects?

*  What are the procedures?

*  Will the client get caught in the middle if the contractor and manufacturer blame each other, or can it require the issue to be resolved first and leave them to fight it out later?

*  Where the client has required defects response times, have these been factored into the arrangements with the manufacturer as well as the contractor?

*  Is there a product warranty on the MMC element? If so:

* can any contractor carry out maintenance without voiding the warranty or must the they be approved?

* what happens where there is maintenance on linked elements e.g. M&E services running through MMC components, could these works void the warranty?

*  Are there any proprietary parts involved? If so, what are the arrangements for obtaining spares:

* are there any spare parts included in the contract price?

* are these parts that could be required on an emergency basis? If so, could these be obtained in those timescales, or should the client maintain a stockpile?

* does the contract provide any protection against rising prices for spares, for example by linking the price to inflation?

So...?
However, these differences are a matter of detail rather than fundamental differences in the way landlords approach asset management. However, if landlords do not do their thinking on these points at the outset they may find that the devil is indeed in the detail!