Labor Market Drives Modularization And Prefabrication on Industrial Construction Projects


Modularization isn’t the right strategy for every industrial project, but as petrochemical companies, power plants and manufacturing facilities demand new ways to cope with labor rates, weather, safety risks and site constraints, its appeal continues to grow.

“With the reduction in qualified welders due to retirement and the increased cost to get younger welders and special craft professionals to jobsites, there is a really good chance modular construction and prefabrication will trend up in the future,” says Les Kaspar, modular design specialist with Richard Design Services, a division of Richard Industrial Group, Beaumont, Texas. “Plus, the cost of skilled labor in overseas assembly and fabrication facilities is moving toward U.S. rates, which may open up more opportunities here in the states.”

 Only about 20 percent of industrial projects even consider the potential of modular, according to Tim Heffron, manager of project development for the fabrication division of Lauren Engineers and Constructors, Inc., Abilene, Texas. Heffron co-chairs the Construction Industry Institute’s (CII) Modularization Communities of Practice (MCOP), a group of nearly 30 owners, contractors and academics who share a vision of guiding the capital project industry to enhance performance through modularization.

To jumpstart the effort, MCOP has developed two sets of PowerPoint slides (running about 15 minutes each) that can be used to educate executive management teams on the drivers and capabilities of modular construction, such as reduced capital costs and schedule risk, improved quality and safety, minimal impact on operations, fewer permitting issues and weather-related work stoppages, and the potential for standardization.

“The basic principles of modular have been known in the industrial sector for about 20 years, but there’s a misperception that you should only do modules in remote places like the North Slope,” Heffron says. “Almost every project could benefit from some level of modularization, but the key is starting the discussion early and engaging the right people along the way to help determine the optimum level.”

According to Kaspar, it’s crucial to start modular evaluation as early in the conceptual engineering process as possible. If the findings are favorable, then it’s time to achieve full commitment from the owner for process engineering and procurement.

“We have been asked to evaluate a unit for possible module application after the detailed engineering has begun and the plot plan is established,” Kaspar says. “We have had success doing this, but a job is much more effective if the plot plan and foundation plan are arranged for a modular project.”

It’s also important to understand modular is not necessarily the most cost-effective way to execute a project. In fact, several characteristics of modular construction cost more, such as heavy haul transportation, increased use of structural steel and the engineering required for each module. As such, the labor or schedule advantages gained from modular must offset additional costs.

“For these reasons, it is very important for owners considering modular construction to go with an engineering contractor that has experience in modular engineering and construction execution,” Kaspar says. “Picking an engineering company with little or no modular expertise will be very costly and likely lead to long, unexpected delays.”

Some of the types of modules Richard Industrial Group builds include process modules with vessels, heat exchangers, pumps, junction boxes, etc.; structural stair and support frame modules; and pipe rack modules, which can reduce onsite erection time from several months to one week and dramatically reduce the amount of laydown area needed.

“From day one, think about the module parameters,” Heffron advises. “Focus on removing manhours from the site that otherwise would be for stick-built construction. This could be done in one small area, or be done more strategically when laying out an entire plant.”

To assist in this analysis, MCOP developed an Excel spreadsheet tool in which users can enter project-specific data to automatically generate comparisons of modular versus stick-built costs. High-level estimates can be used at first to allow for early analysis, which then can be refined as more detailed project information becomes available. (The spreadsheet and PowerPoint presentations, along with two other MCOP tools, are available to CII members at construction-institute.org or by emailing tim.heffron@laurenec.com.)

One of the biggest detractions to modular project execution is contract procurement. Owners usually don’t want to put all their eggs in one basket and bring partners in early on that they’ll be tied to for the duration of the job, Heffron says. Instead, they’ll often pick one engineering company to help in the beginning, but somewhere along the way a different engineer may come on board that doesn’t have modular expertise.

“The easy button is to take it one step at a time without a big vision. By the time you’re done carving out scopes, you’re on the road to traditional EPC,” Heffron says. “Even in that case, Lauren has been handed non-modular projects and figured out a way to modularize them on a limited level.”

Evaluation Best Practices
When considering modularization, a solid analysis must be performed to identify cost and schedule drivers. In particular, Richard Design Services assesses whether modularization would:
  • reduce labor costs due to limited skilled manpower, high wage rates or anticipated low productivity;
  • improve the schedule due to extreme weather conditions or permitting issues;
  • reduce congestion at a site with other projects going on or limited laydown areas; or 
  • meet the client’s desire to shift hours offsite to enhance safety and reduce liability exposure.
It’s also important to conduct a transportation study of road, water and rail options to determine the maximum shipping limits or size a module can be, as well as cost per load to deliver modules from the fabrication facility to the construction site. Similarly, a heavy lift study should be performed to determine crane lift areas, cost and execution.

Additionally, MCOP recommends contractors identify how modular project execution will differ from a traditional site-built approach, with emphasis placed on planning and cost estimating, basic design standards and detailed design deliverables.

“The biggest gains from a modular solution are only realized if adequate funds are allocated to support the added upfront costs for the early planning and engineering effort, as well procurement of the on-module long-lead equipment,” Heffron says.

Kaspar concurs: “It’s critical to purchase equipment, in-line instruments and any specialty items as soon as possible and obtain firm commitment from vendors to provide dimensional data to complete the design and receive the component in time to install it in the module.” 

MCOP also recommends identifying and ranking “critical success factors” for the modularization process—more than half of which require leadership from the project owner—as well as determining whether the modular design should be standardized for future fabrication.

“A business case analysis is needed to determine the repeat quantity required for a break-even proposition,” Heffron says. “That being said, thinking about standardization during modularization can be as simple as designing for a higher seismic condition, a standard footprint or slightly larger piping to allow greater flexibility for use elsewhere without a redesign.”

Though the majority of Richard Industrial Group’s modular units are unique, the company has had the opportunity to somewhat standardize three crude-by-rail unloading facilities, as well as complete two unified hydrocracker units for Valero that were engineered once and built twice.

“In recent years, we have been approached by process licensors to possibly partner with them on standardized midstream and downstream packaged units where a client would purchase one or more of the units to achieve their throughput needs,” Kaspar says. “These haven’t panned out as of yet, but we are optimistic.”

Intentional Prefab
When modularization isn’t practical, in-house prefabrication is another way to enhance productivity on industrial projects.

“It’s tough for us to build big modular platforms or skids because we run into problems physically installing them in facilities or moving them across the country on a flatbed truck. Plus, a lot of the work we do isn’t repetitive, so that takes away from the benefit of modularization,” says Eric Helland, director of preconstruction for Casey Industrial, Westminster, Colo. “Instead, we break the job down into smaller activities, or portions of a skid, and prefabricate those each time. Prefabrication is an intentional mindset for us; we know when we encounter a certain type of work, we’ll do portions offsite ahead of time.”

Casey Industrial became serious about prefabrication in 2008, when it acquired a company in Mississippi with a fabrication shop. The amount of work done offsite depends on contract structure, project location, front-end planning and owner willingness. Casey Industrial performs a lot of work in power plants, where projects are planned several years ahead of execution and engineering is finalized early on, resulting in a good fit for prefabrication.

“We have the best success when we plan prefabrication during the estimating phase. Then it’s understood among the project team that we’ll only deliver on our labor factors if we execute the prefab well,” Helland says, noting the firm welcomes this level of responsibility rather than sending the work to an external fabricator because it can maintain control over last-minute design changes, involve the fabrication facility in progress planning meetings and guarantee just-in-time deliveries. 

In contrast, for many manufacturing projects with just-in-time engineering, it’s difficult to plan far enough ahead to fully leverage prefabrication. One exception is manufacturing facilities that aren’t as complex or aren’t as tied to specific engineering plans. “In those cases, they are willing to hear our ideas,” Helland says. “But it takes a client that empowers its plant leadership to make common-sense decisions on the ground for us to be successful.”

On one Texas project, the scope of underground electrical work would have entailed opening up a 10-foot ditch, running conduit underground, and then coming back to fill in the duct bank and bring it up to grade. However, Texas was experiencing an extremely rainy season, and those ditches filling up with water would have meant considerable rework.

“We decided early on to prefabricate and modularize as much as possible so we’d only have the duct banks open for one or two days,” Helland says. “It reduced a major risk item for us. With rain, it would have taken up to three times longer to do the work.”

On another project in Nebraska with significant owner delays, Casey Industrial encountered the problem of having a crew onsite with nothing to do. Rather than continually having to send workers home—and risk not getting the same ones back the next day—the company rented a warehouse in the same industrial park as the jobsite to serve as a temporary prefabrication shop. That way, a smaller crew stayed busy longer, reducing risk and improving productivity.

 “We often look for ways to do some assembly offsite, but not necessarily in our shop,” Helland says. “We’ll even prefab on the jobsite; just not in the exact location of installation, which might be really congested. We move work out of that area to be more efficient and safe.”

Staffing and technology will be major drivers of prefabrication and modularization in the years ahead.

“It’s always easy for us to find craft professionals who are willing to work in one spot, like our Mississippi shop, or work on a project for a year, versus on a two-month shutdown where we need 150 people,” Helland says. “For a short duration project, it’s difficult to train them and make sure they understand the plan and have internalized our culture. That’s where quality and safety problems come in.

“The average age of the top tier of skilled labor is increasing and exiting the workforce, which diminishes the overall level of construction knowledge,” he adds. “It’s also difficult to entice the younger generation of skilled workers to travel.”

On the plus side, 3-D modeling and 3-D scanning are helping improve prefabrication capabilities. Already, project teams can pull up a model and explore how to move in a piece of equipment, which builds confidence among stakeholders.

“A couple years ago we did a 3-D laser scan of an existing facility for about $40,000. It was great, but the cost was high and we had to FedEx around a hard drive because the data file was so big,” Helland says. “The industry will figure out how to better share and manage that data, the costs will go way down, and eventually every existing facility will have a 3-D model that allows seamless expansion tie-in.” 


Guidelines for In-House Prefabrication
Eric Helland, director of preconstruction for Colorado-based Casey Industrial, offers the following tips for construction companies seeking to ramp up prefabrication capabilities.
  • Talk to business development staff about where future work will be geographically located to ensure the prefabrication shop is convenient enough to economically transport prefabricated components. 
  • Make sure labor savings or other project requirements (e.g., meeting the constraints of a tight shutdown schedule at a power plant) offset the cost of shipping.
  • Set clear expectations and key performance indicators for shop personnel and field leadership so they know they’re being measured on the amount of work performed offsite. In other words, incentivize staff to prioritize prefabrication; it can’t only be done from a central office. 
  • Recognize that this is a mindset shift for superintendents and project managers, who may interpret prefabrication as a way to take work away from them. Sit down and explain that the only way the company can be competitive going forward is to find new ways to build better, safer and at a lower cost. Then they can connect the dots that their future depends on the company’s advancement.

Joanna Masterson is senior editor of Construction Executive. For more information, email masterson@abc.org, visit constructionexec.com or follow @ConstructionMag.