Transaction Cost of Offsite Construction (OSC): A New Zealand Study

Abstract

Offsite construction (OSC) has been put forward as a solution to many prevailing challenges facing the construction industry, including but not limited to low productivity, housing shortage, lack of innovation, and poor-quality outputs. The uptake of OSC is relatively slow in the New Zealand construction industry. With only 10% of all the new builds using the OSC approach, it is evident that the potential of this construction approach is under-utilised. Many barriers have been identified as responsible for low uptake, including cost-related barriers. This study investigates the transaction cost of OSC, which is an extra cost to the project development cost and is generally overlooked in the project planning and development stage. This study aims to identify the factors that contribute to the transaction cost of OSC in New Zealand, alongside investigating the impact of transaction cost on overall project delivery and factors that can minimise the transaction cost. A questionnaire survey was conducted involving OSC practitioners in New Zealand. It was noted that consultation with building consent authority, the complexity of interface design, limited capacity of offsite manufacturers, and highly skilled workforce requirements contribute to transition cost during concept design, technical design and procurement, manufacturing, and on-site assembly stages. Consequently, disputes between stakeholders, uncertainty, an overall increase in project cost, and reluctance to use OSC may occur. It is noted that the use of innovation like automation, building information modeling, design for manufacturing and assembly, and consenting process to suit OSC holds the potential to reduce the transaction cost.