Contract documents

October 22, 2021

Building codes, like the International Building Code, are written with a traditional construction project in mind. In a traditional project, architects and engineers provide a custom design that is assembled by a team of contractors on a particular site, in one fixed location, where code-required inspections can be conducted at appropriate phases of construction. But what happens when prefabricated modular units are built off site, perhaps even in a different state, and arrive in a condition that makes traditional inspections difficult or impossible? Do the established building codes even apply?  If so, how does it all work?

The fact is that the landscape of code requirements for projects using modules is changing. The International Code Counsel (“ICC”), the body who creates and updates the International Building Code and International Residential Code, has partnered with the Modular Building Institute (“MBI”) to develop a comprehensive standard to address the off-site construction process.^[1] The ICC and MBI have recently approved a set of first edition standards, namely, the ICC/MBI Standards 1200 and 1205, which are set to be available in late 2021. Once completed, these new standards may eventually be adopted by states as their official set of rules that apply to modular construction.[2]

Despite these efforts, as of this writing, most projects using modular components are subject to the same building codes as traditional site-built projects. Within state building codes, projects using modular components receive no special treatment from a pure code compliance perspective.[3] What many states have done, however, is devise their own process for reviewing projects that have modular components. These state-specific processes generally address issues such as inspections, quality control, and plan and specification review. Nonetheless, the end-goal is to make sure that all off-site constructed modules comply with the established building code.

South Carolina’s modular buildings program is a good example of how states have navigated the questions surrounding permitting buildings with modular components. South Carolina has made it clear that buildings constructed using modular components will be held to the same building code applicable to traditional construction.[4] However, the South Carolina legislature enacted the Modular Buildings Construction Act (“MBCA”), with subsequently enacted regulations, to formalize a process for how modular buildings can comply with the state’s building code.^[5] In enacting the MBCA, the South Carolina legislature formalized a policy regarding modular components that solves the concerns that many other states have come to recognized. Specifically, the MBCA acknowledges that modular building units present unique challenges that are not easily ascertainable by purchasers, users, and local building officials – then sets out a procedure for fabricators to overcome those challenges.^[6] The South Carolina process requires third-party inspections of the modular manufacturing site to review aspects of the manufacturer’s production and quality control procedures.^[7] These third-party inspections must be conducted by an independent inspection agency that retains registered design professionals who are qualified to provide such inspections. These inspection agencies are responsible for performing plan approval, inspections, and certification of commercial or multifamily modular buildings.^[8] In instances where modules are duplicated, the approved inspection agency must make a complete inspection of at least one unit through all phases of manufacture.^[9]

When a module is complete, the inspection must certify that the module (a) was manufactured in accordance with approved building systems and (b) passed third-party inspection.^[10] Certification is evidenced by the attachment of a certified label, commonly referred to as a “seal,” to the modular component, which can only be attached by the manufacturer under the supervision of the approved inspection agency.^[11]

So, what happens if a module is manufactured outside of South Carolina, but is intended to be incorporated into a South Carolina project? This, of course, is the key question for modular projects as modules are often fabricated in one state, then shipped to another state for erection. The MBCA allows the modular building counsel to enter into reciprocity agreements with other states, whereby inspections and certifications of modular units constructed outside of South Carolina can satisfy South Carolina law.^[12] Reciprocity agreements are a common approach as other states, such as Nebraska^[13], Texas^[14] and Idaho^[15], have enacted similar legislation. These reciprocity agreements create a clear forum to determine whether a modular unit bearing one state’s seal can meet another state’s certification process, and therefore, needs no further inspection prior to installation. Reciprocity agreements also avoid the need for duplicative on-site inspections and provide much needed efficiency to the process.

In the same fashion, states such as Minnesota, New Jersey, Rhode Island, and North Dakota have entered into reciprocity agreements with each other by becoming members of the Interstate Industrialized Buildings Commission (“IIBC”). As part of the IIBC, these states have ratified IIBC’s Interstate Compact on modular buildings and established uniform standards for construction of modular buildings across member states. The Interstate Compact recognizes that the variety of state regulation of modular buildings creates confusion. The Interstate Compact’s policy is to provide member states with a program to coordinate and uniformly adopt and administer rules and regulations for the design and construction of modular buildings. When a modular unit bears IIBC’s seal, it is automatically accepted across all member states and no further inspection at the time of delivery is necessary. Along with the reciprocity agreements mentioned above, IIBC’s Interstate Compact has reduced the overall burden of scheduling inspections when modular units are produced and delivered in member states. This has eased the burden on owners, contractors, fabricators alike by narrowing the body of varied laws applying to the construction of modular buildings.

Though there have been efforts to create uniformity in modular construction, the fact remains that disparity exists between state building codes to complete a modular project, as well as legal responsibilities following completion. South Carolina’s MBCA sheds light on the practical and legal ramifications of erecting a building that makes use of modular components. The MBCA requires that buildings using modular components be erected by a South Carolina licensed general contractor. Then, upon completion of the structure, the MBCA makes clear that modular buildings are considered equal to structures constructed on site in a conventional manner and that the general contractor “must assume the same responsibilities and liabilities for the work which they perform, as if the buildings were constructed on-site.”^[16] Modular fabricator’s warranties then start upon the owner taking possession of the building.^[17] In other words, buildings constructed using modular components in South Carolina, even those that are constructed wholly from modular components, are subject to the same code requirements, warranties, and liabilities as buildings using conventional construction techniques.

These same requirements are not true in every state. By way of example, North Carolina does not require a state licensed general contractor to erect a modular building – at least not in the traditional sense. North Carolina defines “general contractor” to mean, among other things, “any person . . . who undertakes to erect a North Carolina labeled manufactured modular building meeting the North Carolina State Building Code . . . ”^[18] North Carolina’s Building Code Council has adopted rules to insure that any person who is not a licensed general contractor and erects a North Carolina labeled manufactured modular building meets code, including the procurement of surety bonds.^[19] Therefore, a person who erects a modular building need not be licensed if he meets state surety bond requirements.^[20] Unlike South Carolina, North Carolina’s regulations do not address the commencement of warranties on modular buildings.

Further muddying the waters, various states have enacted an order of priority between state regulations and local ordinances. California’s legislature, for example, as part of the Manufactured Housing Act of 1980, expressly provides that the state’s regulations are preemptive over any local requirements.^[21] Therefore, state regulations provide the minimum design and construction standards for all multifamily manufactured homes and commercial modular units sold, rented, or leased throughout California. This means local ordinances only add to, and do not supersede, California’s state building code. It is imperative to understand the applicability of state and local laws to the modular project site. Many jurisdictions have enacted civil penalties for those who fail to take heed of the applicable rules.

In all, the developing landscape of modular construction codes and industry standards should bring necessary clarity to the complexities of jurisdictional rules and regulations. As this article shows, state and local building codes can greatly vary in modular construction. The modular manufacturing state may have vastly different rules and regulations than the installation state. Many states have enacted reciprocity agreements to minimize the need for duplicate inspections in modular construction, but this type of legislation is found in the minority of states across the United States. The ICC and MBI’s partnership in developing modular standards is a welcomed development in this field, bringing uniformity and established customs that are easily identifiable and understandable by owners, fabricators, and contractors alike. However, until the day that one uniform standard exists, all parties should take time to learn the rules and regulations that apply to the construction of modular projects, both on- and off-site and during all phases of design and construction.

^[1] International Code Counsel, ICC Off-Site and Modular Construction Standards Committee. Retrieved from www.iccsafe.org/products-and-services/standards/is-osmc/ [2] Modular construction means that “the materials were delivered to an off-site location (the modular manufacturing facility), assembled into components or three-dimensional building modules, then transported to the final site for assembly.” Modular Building Institute, Frequently Asked Questions. Retrieved from https://www.modular.org/HtmlPage.aspx?name=faq ^[3] National Manufactured Housing Construction and Safety Standards Act of 1974, 42 U.S.C.A. § 5401, et seq.; 24 C.F.R. Parts 3280 through 3800. ^[4] S.C. Code Ann. § 23-43-30 (West); S.C. Code Ann.§ 6-9-5 (West). ^[5] See, i.e., S.C. Code Ann. §§ 23-43-10 through 23-43-200 (West); S.C. Code Ann. Regs. §§ 6-9-5 through 6-9-130; S.C. Code Regs. 8-601, et al. ^[6] S.C. Code Ann. § 23-43-30 (West). ^[7] S.C. Code Ann. Regs. § 8-611 (West). ^[8] S.C. Code Ann. § 23-43-90 (West). ^[9] S.C. Code Ann. Regs. § 8-611 (West). ^[10] S.C. Code Ann. § 23-43-80 (West). ^[11] Id. ^[12] S.C. Code Ann. § 23-43-170 (West). ^[13] Neb. Rev. Stat. Ann. § 71-4606 (West). ^[14] Tex. Occ. Code Ann. § 1202.205 (West). ^[15] Idaho Code Ann. § 39-4305 (West). ^[16] S.C. Code Ann. Regs. § 8-626 (West). ^[17]  Id. ^[18] N.C. Gen. Stat. Ann. § 87-1 (West). ^[19] N.C. Gen. Stat. Ann. § 143-139.1 (West). ^[20] See, i.e., Id..; Petty v. Owen, 140 N.C. App. 494, 501, 537 S.E.2d 216, 220 (2000) (entities erecting modular homes need not be licensed general contractors if surety bond requirements met). ^[21] Cal. Code Regs. tit. 25, § 4200 (West).

AIA Contract Documents has provided this article for general informational purposes only. The information provided is not legal opinion or legal advice and does not create an attorney-client relationship of any kind. This article is also not intended to provide guidance as to how project parties should interpret their specific contracts or resolve contract disputes, as those decisions will need to be made in consultation with legal counsel, insurance counsel, and other professionals, and based upon a multitude of factors.