The industrialisation of housing delivery
Facing a myriad of challenges, housing shortages, labour constraints, increased demand and delivery pressures, Australia’s construction industry is undergoing some critical structural shifts. Supported by governments and industry bodies, the uptake of Modern Methods of Construction (MMC), including modular, prefabricated and offsite manufacturing, is being accelerated.
Only recently, the NSW Government introduced the proposed Building (Approvals and Practitioners) Bill 2026 (opens a new window) (Bill) to the NSW parliament.
The aim of this, if enacted, is to address concerns about aspects of the Design and Building Practitioners Act 2020 (DPA 2020) and to consolidate the multitude of ad hoc amendments that have followed. It proposes to repeal the DPA 2020, though much remains mirrored in this new proposed Bill. The result is hopefully to increase trust among the industry and consumers.
A component of the Bill addresses MMC, which is the focus of this article. Whilst the MMC construction method often faces scrutiny, these reforms mark a step towards greater utilisation in the industry. However, it also raises questions about how liability exposures and governance frameworks may evolve.
From fragmented construction risk to integrated delivery risk – Benefits of MMC
Historically, construction liability has often been dispersed across multiple contractors, consultants and trades operating sequentially on-site. MMC changes that dynamic, with more elements of buildings being made off-site in controlled factory conditions, thereby:
allowing for various steps of a build to be performed simultaneously, reducing building time,
reducing on-site human error,
allowing for higher-quality control over larger elements of the build.
The new proposed Bill reflects this evolution by formally recognising prefabricated buildings within legislation, and integrating MMC into the approvals system, including defining it to fall under the Home Building Act 1989 and Environmental Planning and Assessment Act 1979.
Some of the positive aspects of this are:
MMC’s inherent lower design costs: duplicate drawings are not required for repeated modules, and prior project designs can be reused through a “product catalogue” transferable from project to project.
Improving protections for homebuyers of the MMC method builds.
A quicker process to certification and approvals, so projects can break ground sooner.
Whilst these measures may contribute to operational improvements, it also has the potential to concentrate liability in ways the market is still adapting to
Under many prefabricated or modular delivery models, greater responsibility and liability may sit with:
Integrated design teams are working on the project more holistically.
The off-site manufacturers of modular products.
Certifiers on-site, also in-factory inspectors/surveyors at manufacturers' premises.
Design firms that utilise digital design tools.
Vertically integrated developers.
The flip side – Risks of MMC
There are many historic cases where modular building methods have caused issues. However, it is now widely accepted that many of these challenges arose from a sector in its infancy, and technological innovations have improved outcomes.
Notwithstanding advancements, there remain some risks of utilising MMC, including:
On-site surveyor inspections “by sight” can be more difficult, as many integration points for materials are hidden. However, the mitigation for this is, of course, an adequate inspection process at the manufacturing stages off-site.
Narrow supply chains. For example, if a supplier of a catalogue of specialist components goes into financial difficulty, are there any other firms that can step into the gap?
As MMC is scaled down to smaller projects, such as private home builds, it can cause site access issues due to increased crane or other lifting equipment use.
Transport to the site risks. For example, loss in transit resulting in larger bulk items being lost, or project site selection being more restricted due to access requirements.
Build components being imported from unregulated foreign markets.
Assuming these risks can be managed, a major barrier to MMC uptake has always been the difficulty of changing centuries of construction infrastructure, including the core methods of some large, established dominant players in the sector.
Professional Indemnity: systemic defect and design exposure
Professional Indemnity exposures within MMC environments differ materially from traditional construction models.
In traditional construction, design or workmanship issues tend to be contained within a specific part of a project. By contrast, in a manufacturing-led model, a single flaw in design, specification or production methodology can be propagated across multiple modules, and potentially across entire projects or asset portfolios.
This raises several considerations for PI insurers, including:
aggregation risk,
repeated design defect exposure,
and ambiguity between “professional services” and “product” liability.
As MMC adoption grows, insurers may increasingly need to consider where responsibility sits for defects in a building, whether the traditional design team of architects and engineers, or the inherent product design of a manufactured product, which they may not currently be covering.
Product Exclusions
Commonly, a PI policy will exclude “product risk”, but some exclusions are wider than others in regard to their scope. As the uptake of MMC continues to blur the distinction between what constitutes a “product” and what does not, careful scrutiny of such exclusions is important for construction consultants or contractors operating in this space.
In practical terms, PI underwriters may begin placing greater emphasis on:
How contractors and design teams engage with suppliers of building products.
What language on liability apportionment and routes to recovery is put in purchase agreements? and whether these agreements require manufacturers to purchase insurance that covers inherent product design issues (either professional indemnity, or manufacturers' E&O/ product efficacy cover under a combined general lines insurance product).
More in-depth underwriting questions in relation to the location of the supply chain. For example, are the transport times to the site short? How good are the process control systems, and how thorough and frequent are the inspections?
How architects and engineers manage the balance of risk in carrying out quality assurance checks on products supplied to their performance specifications:
Pro - A design specialist's input should increase the quality/appropriateness of the used products in a project, but
Con – It creates a more exposed liability on said design teams if something goes wrong.
Statutory Liability: expanding regulatory oversight
The proposed reforms also reinforce the growing regulatory focus on accountability within the construction sector.
The Bill introduces stronger conflict-of-interest provisions for certifiers and significantly increases penalties for breaches, with maximum court-imposed penalties increasing from $33,000 to $1.1 million.
As regulatory frameworks evolve, businesses operating within MMC supply chains may face increasing scrutiny regarding:
governance processes,
documentation standards,
disclosure obligations,
and quality assurance controls.
For insureds, this may place greater importance on demonstrating robust internal compliance systems and clear accountability structures.
Management Liability: governance and director exposure
Boards and senior management teams pursuing MMC strategies may increasingly face questions around:
operational resilience,
supplier dependency,
quality assurance oversight,
contractual governance,
and disclosure of emerging risks.
Directors and officers may also face increased scrutiny around:
due diligence processes,
risk disclosure,
contractor oversight,
and management of regulatory compliance frameworks.
For Management Liability insurers, this may lead to greater focus on:
enterprise risk management,
supply-chain resilience,
cyber and digital governance,
and internal compliance reporting.
This is particularly relevant as construction businesses continue to evolve from traditional contracting models toward MMC.
Regulation and insurance are likely to evolve together.
The NSW reforms are ultimately designed to accelerate housing delivery while maintaining confidence in quality and oversight, and the inclusion of MMC into these regulations is likely a good thing. However, as we saw from the DPA 2020, industry response may not be as one-sided, and we shall see how things evolve there.
Regarding both MMC uptake and the wider impact of this proposed Bill, Underwriters will need to consider how risk is changing.
Over time, greater regulatory clarity, standardisation and oversight may support improved insurer confidence in MMC projects. However, this transition is also likely to reshape liability exposures across the PI, Statutory Liability, and Management Liability classes, with the market still assessing the implications.
We can help ensure your cover is fit to account for the changing landscape driven by higher MMC utilisation.
The contents of this publication are provided for general information only. Lockton arranges the insurance and is not the insurer. While the content contributors have taken reasonable care in compiling the information presented, we do not warrant that the information is correct. The contents of this publication are not intended as a legal commentary or advice and should not be relied on in that way. It is not intended to be interpreted as advice on which you should rely and may not necessarily be suitable for you. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content in this publication.