Dr Liz Gordon wrote to The Press with questions about EQC's changes to its opting-out policy. Here are those questions, with responses from EQC and Fletcher EQR.
Liz Gordon writes:
I think there is now cause for significant public concern about the role of Fletchers in the rebuild. The concern arises from the near-monopoly given to the company in managing this work, with homeowners being required to opt out if they want to go with non-Fletcher repairs.
Companies with such large contracts involving public money should expect a high level of scrutiny from the community. It is remarkable that such scrutiny has been almost non-existent.
Over the months various concerns have been talked about between friends, at work and in communities.
How long will we have to wait for repairs?
How does Fletchers decide how to allocate work?
What service standards should we look for in terms of timing and quality?
I have not met anybody who has had the slightest notion of how to answer these questions but, like others, have been resigned to a long wait.
However, there are two issues recently that have made a closer look at Fletchers more urgent.
The first was the decision by the Earthquake Commission (EQC) requiring homeowners wanting to opt out from the Fletchers system to pay up front and get reimbursed for the repairs. This is inevitably going to push many families back into the Fletchers scheme, reinforcing the de facto monopoly. This raises the first big question:
1. Was changing the rules about payments for opt-out work a deliberate attempt to limit the numbers who would opt out of the scheme, thus bolstering the Fletchers contract? If not, what were the reasons that led to the decision?
On the face of it, there is little to be gained by changing the rules. Every invoice is still going to have to be scrutinised in the same way, and involving the householder appears to add an additional party to the payment process.
Changing the opt-out rules may have been a deliberate hurdle put in the way of householders to push them back into the Fletchers scheme. If so, there are a couple of potential advantages for EQC in this. The first is that it may be easier and cheaper to get Fletchers to do all the administration and pay bills, and EQC may be keen to shed as much of that work as possible.
The second is Fletchers may be better able to contain costs than the opt-out scheme, so again would be a preferred option.
The third potential explanation is a little more sinister. Fletchers may be putting pressure on EQC to limit the opt-outs, in order to maximise its own role in the rebuilds. You discourage these opt-outs, Fletchers may be saying to EQC, and we will keep down the costs for you.
The second issue is that a week or so after the opt-out announcement, Fletchers reduced the rates it will pay painting sub-contractors. This raises further big questions, namely:
2. On what basis does Fletchers get paid? Will the cost savings associated with the reduction in painter's fees go to the contractor (Fletchers) or back to the EQC? Also, do Fletchers get a bonus for reducing costs?
3. If Fletchers benefits, then what is being done to ensure that the company is not fattening its purse at the expense of its subcontractors?
4. If EQC gets the cost savings, then was the commission part of the decision-making that led to the big reduction in painter's rates, and other contract cost- cutting that has been going on? If so, how does that work?
The rebuild is not going well. I spoke to a couple of contractors I know. While people wait to get homes fixed, contractors in the Fletchers scheme do not have enough work to keep them busy. With that and the cost reductions, many are being forced out of business.
I was told that the opt-out announcement was a deliberate attempt to keep people in the Fletchers system. I was also advised to opt out - and promised I would not have to pay a penny up front. If our claim one day escapes the unending tangle of the EQC bureaucracy, I might consider it.
Fletchers is a private company but should expect scrutiny as if it were a government agency, and must be transparent in its dealings. The company will be enriched for a generation by the earthquake repairs, as it was in the mid-1900s by building state houses.
The people of Christchurch should have a reasonable expectation that these questions will be answered. Basing a city rebuild on secret contracts, edicts from the top and unholy alliances is not acceptable.
* Dr Liz Gordon is a former MP who runs the research and evaluation agency Network Research Associates.
EQC customer services general manager Bruce Emson responds:
Much has been made, in The Press and elsewhere, of changes to EQC's opting-out policy.
These changes have been made in order to streamline the process for customers, making it easier for them to take control of their own repairs should they choose to do so. This includes a much faster sign-up process, and a much faster approval process.
When a customer opts out, they are taking over the role of project manager from Fletcher EQR. With this role comes the responsibility to oversee the repairs of their house - including payment of their contractor of choice.
As repair work is completed at agreed stages, the project manager - who is the customer, if they have opted out - presents invoices to EQC and these are paid. If the invoice falls due before EQC has paid the funds, then it becomes the project manager's responsibility to pay the invoice and then to be reimbursed. EQC's standard payment terms are the 20th of the month. Provided the invoice is received on time, the customer/project manager should have no difficulty paying the contractor.
Project management is not the most appropriate solution for everyone. As anyone who has managed a building project knows, there are lots of variables and things can turn out differently from expectations. This is why the Fletcher EQR project management option exists: to give customers peace of mind by taking care of all the building consent requirements, financial responsibility and quality control.
The vast majority of Fletcher EQR customers are satisfied. A survey of those who had urgent repairs undertaken found that between 80 and 90 per cent were satisfied with the standard of workmanship, effectiveness of the repair, and attitude of the tradespeople involved.
Fletcher EQR won the tender to project manage the Canterbury Home Repair Programme on behalf of EQC. This means they handle payments to repair contractors, in exchange for a 3.5 per cent fee. Fletcher doesn't do any repair work itself. Accordingly, if the rates to contractors are reduced, so is Fletcher EQR's fee - they do not stand to gain from using their market position to drive down wages or material costs.
The work is handled by thousands of tradespeople - the majority Cantabrians - who meet the required accreditation standard. These tradespeople have so far completed more than 19,000 full-scope repairs to houses, meaning they have repaired the equivalent of every house in Nelson.
Despite a general sense sometimes expressed in the media that the Christchurch rebuild has stalled, the Canterbury Home Repair Programme is actually on target, with more than 100 houses repaired a day - or 4500 in the last two months. The rate of completions has been rising, although work must continue to ramp up to ensure future targets are met.
Customer satisfaction with Fletcher EQR-run urgent repairs is running at between 80 and 90 per cent.
Canterbury home repair programme. Customers who opt out must manage the payment of contractors, but invoices received on time will be paid on time.
Progress payments can be made at agreed stages of the repairs. Fletcher EQR contractors have completed more than 19,000 home repairs.
The workmanship of repairs undertaken by the Canterbury Home Repair Programme is supported in three ways:
1) The customer must sign off the repairs once finished.
2) There is a 90-day "defect" window where the customer can call back the contractor to complete work not up to standard.
3) EQC runs outbound calling to ensure the repairs were completed to the agreed level before closing the claim file.
Fletcher EQR general manager David Peterson writes:
EQC has stated its reasons for changing the opt out rules very clearly. We can't add further perspective, for the simple reason that Fletcher was not involved in the rule changes. The opt out process is conducted by EQC for its own purposes and those of its customers. Fletcher has no role in it other than to assist with access to the relevant information if and when customers ask for it.
Fletcher is paid a flat percentage fee. The physical repair work is done by contractors sourced overwhelmingly from Canterbury. They are paid the value of their approved invoices, and Fletcher is paid 3.5 per cent over and above that amount. There is no bonus for cost reductions or anything else. If the cost of the repairs falls, the effect is to reduce Fletcher's fee. This should put to rest any speculation that we would benefit from driving down the rates paid to contractors. Our responsibility is to deliver the programme at reasonable cost, safely and with good quality.
There is no way for Fletcher to fatten its purse at the expense of contractors. Fletcher does not benefit from any reduction in costs, and contrary to one urban myth we do not charge fees to contractors.
Regarding painters' rates, Fletcher is required to carry out rate reviews under our contract with EQC. (It could be noted that there are several other stakeholders - including the government, taxpayers and reinsurers - who are also keen to be assured that repair costs represent fair market value.)
The reviews are thus a wholly appropriate discharge of our responsibility to deliver the programme at reasonable cost. They are conducted with the benefit of independent market data and input from contractors.
The March review identified that the existing painting rate of $25 per square metre was well above market levels. In fact, the new maximum set by the review was still well above the rates applying pre-earthquakes.
Fletcher understands that the vast majority of contractors are comfortable with the new maximum. What has been lost in the recent media commentary is that some other rates, notably for grinding out and epoxy filling cracks in concrete, were adjusted upward.
Almost all the repair jobs are quoted and paid on a lump sum basis. Rates are used for assessment and analysis where necessary.
Public scrutiny: Fletcher is open to public scrutiny every day. Its staff and the contractors who work with them are in the field throughout Christchurch, going about their work in full view. They have completed 80,000 repair jobs, large and small, interacting with tens of thousands of homeowners or residents and their families.
Fletcher publishes a range of information including updated project numbers - full scope, urgent and heating repairs; plus payments to contractors and other metrics - on our website www.eqr.co.nz. It is open about the remuneration system. It deals with questions from the media and other parties as they arise. How many organisations are under more scrutiny than that?
Waiting times and the method of allocation: It has not been easy to answer these questions fully up to now, for a range of reasons including continuing aftershocks, the timing of settlements, land damage, foundation damage and others. The overall target date for the programme is to have 80 per cent of the repairs completed by the end of 2014, with appropriate focus in the short term on the most heavily damaged properties.
Fletcher anticipates providing information on the methodology for queueing repairs in the near future in conjunction with EQC, and giving progressively sharper estimates to all customers, to allow them to plan ahead, as soon as possible.
Quality standards: Our responsibility is to repair earthquake damage. The extent of this is sometimes clear, and at other times open to dispute or misinterpretation. We also have to comply with the Building Act and relevant consents. Where building work is not satisfactory the contractor is obliged to fix it.
At the end of the repair process there is a three- months defect period in which the homeowner can draw any defects to our attention and have them remedied. At any stage, complaints are taken through an open and accessible process, and most are resolved within a few days.
The scorecard to date, in round numbers, is 20,000 full- scope repairs, 45,000 urgent repairs, 16,000 heating repairs and $600 million paid to contractors (including $50 million paid for June). The recent run rate for full-scope repairs is around 100 houses per day, or 2000 per month.
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