Smaller rebuilders face squeeze

MARTA STEEMAN
Last updated 10:35 28/07/2013
Canterbury Master Builders' Association President Clive Barrington
Canterbury Master Builders' Association President Clive Barrington

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Christchurch's home building industry is polarised, it seems, between those with full books of forward work and those whose future work is looking skinny.

The easier "cosmetic" repairs are now thinning out in the Christchurch rebuild, and the more complex jobs requiring foundation work, soil remediation and other structural repairs have finally made it to the top half of the list.

The casualties of this progress are likely to be tradesmen, such as painters and plasterers, who have enjoyed a bumper 18 months of "cosmetic" work with Fletcher EQR. Small firms of builders who do not have the skills and equipment to tackle the more complex jobs will also be hit.

Home building is basically a cottage industry of thousands of small operators, "two men, a ute and a dog", as a leader in the industry is fond of describing it, and many are out of their depth in trying to serve the biggest residential reconstruction in the country's history.

Fletcher EQR boss David Peterson, managing repairs costing between $15,000 and $100,000 for the Earthquake Commission, says the big jobs will take twice as long on average - 90 days compared to 45 days - and that will slow down the flow of work.

In coded language, Petersen also indicated a week ago Fletcher EQR would allocate more work to builders if it flowed out of EQC more quickly.

"It's just the slightly frustrating thing for us is it's a little bit piecemeal," Peterson said.

"We don't have a huge forward workload that we know about. We have about four-plus months ahead of us but that's not unusual. That's what we've always had," Peterson said.

Insurance companies, off the record, may be frustrated, too, with EQC but Earthquake Minister Gerry Brownlee and the Government staunchly defend EQC's performance.

At the same time, insurance companies are beginning to step up their repair and rebuild operations - those over $100,000 - and it could not come soon enough for the industry.

However, Project Management Organisations (PMOs) in charge of repairs for the insurers are indicating their preference for larger firms with strong track records and established reputations for their bigger and trickier jobs.

It means the spoils go to the big fish and the smaller fry may miss out unless they contract to the bigger firms or join them as employees. The latter choices seem the smart way to go for the small operator who is a good builder.

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No builder has complained to The Press of having to lay off staff because of lack of work, so judging the extent of that and the slow flow of work from EQC and insurance companies is difficult.

An insider told The Press it is not dire news for all builders but would be for some, and for a range of reasons, not least their capacity to do more complicated repairs and their track records.

Southern Response is a Government-backed operation managing the earthquake claims for the failed AMI Insurance. It is signing up a panel of home building firms to carry out its rebuilds, and another panel of building firms for its repairs. That is millions of dollars of work each year for these companies for the next three to four years.

Southern Response has about 6760 property claimants and from the admirable detail of that on the website it looks like about half will build a new home or repair while the other half will take cash or buy another house.

Up to the end of June, Southern Response had completed 93 rebuilds and 42 repairs with 132 rebuilds and 70 repairs under way.

Canterbury Registered Master Builders' Association president Clive Barrington says most builders are small operators - "two men, a ute and a dog " - not geared up to do what the PMOs want.

"They (PMOs) don't want to do anything, they want the builders to be involved and do everything and they just want to drink coffee in between and send the odd email," a disgruntled Barrington says.

PMOs expected builders to price repairs and attend all sorts of meetings. "That's really not what a builder is all about," he says.

The PMOs should have a bigger structure in his view and an over- cap repair should involve the PMO arranging the specialists to undertake the geotech report and an engineer to work out a repair strategy in consultation with designers and architects and produce the documentation.

"The builder shouldn't be there up until that point. Because he's not actually qualified to make calls on how things should be structurally repaired. It's not his job. He is not qualified to do so, although he may be practical."

So the companies getting the work from PMOs were the builders with back offices and contracting the services of quantity surveyors and other specialists. That was why the standard house rebuilds were mainly being done by the large home-building companies who contracted out work to builders.

However, Barrington's own company has certainly adapted to the new environment and is contracting architects and designers.

"They (PMOs) are happy for us to put a margin on those things but, really, the project manager should be arranging all that and just giving the documents to the builder to price."

"If you actually said what are they (PMOs) actually bringing to the project, it's not a lot really. They are finding a builder and working in with some geotech people and then reporting back to the insurance companies for a sign off to get the job off the ground once the builder has done everything to get to that first stage."

"They're putting the builder at the top. In a good way the builder is getting a margin on it all, but in a bad way the smaller builder hasn't got time to cope with all of that because he's got no back office."

Barrington says once "the onslaught" starts many more builders will be needed.

He has heard that a lot of builders unable to get work with PMOs are going to work on contract for new home building companies "because they are finding it easier than having to go through all this other crap".

Stonewood Homes is one of the busy ones, and owner Brent Mettrick says all the big builders are flat out.

"Certainly your bigger builders in residential are all busy. Some of the smaller guys are quieter while the insurance companies start releasing some of the more difficult jobs to them."

Insurer IAG, with about as many claims as Southern Response, has over 100 "preferred" building firms on its list.

But spokeswoman Renee Walker says in practice a lot of the work is going to about eight home building companies and about five renovation companies.

A claimant may chose their own builder and IAG's PMO, Hawkins Construction, checks the firm's capacity and health and safety processes to ensure they meet required standards and are capable of doing the work.

Some 70 per cent of claimants chose eight companies for the build of a new home.

They are - in no order - Jennian Homes, Orange Homes, Golden Homes, Penny Homes, Mike Greer Homes, Stonewood Homes, Versatile and Peter Ray Homes.

IAG has 1306 new homes and 741 repairs in planning or in construction. It has completed 241 new homes and 91 repairs so far.

The top five renovation companies working for IAG are Farrell Residential, Falcon Construction, Canterbury Reconstruction (the repair arm of Orange Homes), Patterson Insurer Build, and Buildtech Residential.

The two biggies, Farrell and Falcon, work with a few hundred contractors. David Reid, who founded the David Reid Homes building franchise in New Zealand more than a decade ago, and later sold it, is the mover and shaker at Falcon.

Corbel Construction, one of Southern Response's panel of new home builders, says while residential building is very busy, the commercial sector is not likely to pick up until next year. Co- owner and director Craig Jones says naturally the insurers and their PMO are looking to the bigger firms with established reputations and good health and safety practices to deliver the volumes of work they require. Less experienced smaller builders will struggle.

Their options are to contract to the bigger firms or seek employment there.

"Whether the smaller guys will do that is another story." Jones says.

He expects a lot to resist. Builders like to work directly with clients, see the job from start to finish and be their own boss. Lots of great carpenters and builders are not necessarily good at running a business, he says.

Commenting on the reports of disgruntled building firms, Canterbury Employers Chamber of Commerce chief executive Peter Townsend says there's a huge wave of work to come in repair and rebuild of the over- cap properties.

His sources tell him there are 18,000 to 25,000 over-caps and they will gobble up 60 per cent or $24 billion of the estimated $40b city repair bill.

Most of that spending is still to come. According to the Earthquake Commission website and Insurance Council websites, about $8.2b has been spent by EQC and private insurers so far on residential repairs and rebuilds - $5.8b and $2.4b respectively.

That's only one third of Townsend's $24b estimate.

"That's why I keep saying we haven't seen anything yet," he says. "And I suspect that the insurance companies will start freeing up on all of those houses concurrently because they are under huge pressure to get things squared away from the reinsurers."

 

SCORECARD

EQC has paid out $5.8 billion on earthquake claims including repairs, its website states. It estimates it will pay out $12b.

Private insurers have paid about $7.23b which includes about $2.36b in residential claims, the Insurance Council's website states.

Private insurers have an estimated 18,000 to 25,000 $100,000 plus GST residential claims.

EQC has about 40,000 under $15,000 plus GST claims being cash settled. Half have been settled.

It has about 80,000 claims between $15,000 plus GST and $100,000 plus GST.

EQC full repairs done: 41,289.

EQC full repairs to do: 40,860.

 

- Fairfax Media

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