Thursday, 5 April 2018

Botched repairs

It'll be interesting to see how the EQC debacle plays out now that it doesn't have a Minister committed to covering up the cracks by shifting the carpet around.

Here are a couple things that Minister Woods could usefully have her team check in on. They're my working hypotheses about what happened in that mess, but they're not solid enough to have made it into our report. They're hunches. They're hunches that are difficult to test from outside the system on limited resources. And I hardly expect that the hunches are unique to me - they're kind of the shared mythos of Christchurch as of the time I left in 2014.

Hypothesis 1: EQC was generous after the September 2010 quake. Probably too generous. EQC was sitting on a pile of money. We were going into an election. So everybody on the west side of Christchurch in National electorates (in the west of town, closer to the quake's epicentre) got a home makeover if there was a crack in the paint somewhere. Is this true? We sure had the impression it was true, and there are tons of anecdotes around it. If it's true, how much money was wasted there that might have been put towards later repairs?

Hypothesis 2: After February, EQC systematically downscoped repairs as the extent of the shortfall in its reinsurance relative to its claims became clear. I think EQC saw its main job as minimising cost overruns to central government and the draw on central government resource rather than playing straight with its claimants. Full foundation jobs became jack-and-pack. Leveling floors to as-new became "pretty level" MBIE good-enough standards rather than what was in anybody's insurance contract. What EQC's now blaming Fletcher for (Fletcher project managed a pile of the repairs*) is very likely a consequence of scopes inadequate to the scale of the damage. And blaming Fletcher for accepting crappy scopes of work is a bit off where it was darned hard to fight EQC on the scope. EQC downscoped ours two or three times - and our opt-out builder got some of it back through variances as the project continued. So check back on how final scopes of work varied from the initial scopes. What fraction of them were downscopes? Is that fraction consistent with what we'd expect in the normal course of assessment as you get more certainty about the actual damage? Is there data on the actual qualifications of the folks who did the assessments, and how that correlates with the scopes of work and whether it's now a munted repair job?

With the change in government, we now have some chance of figuring out what the heck all happened in Christchurch.

In related news, I'm still chasing Lloyds of London to see whether they'd sell me a parametric insurance policy that just gives me a pile of cash if there's ever a Wellington earthquake of comparable size to Christchurch's. That's simple to define for a parametric contract, but where it's a market of just me, it's likely not worth anybody's time to build the contract. I'd expect that anybody who ever had to deal with EQC would be interested in purchasing actual insurance instead of the "let's pretend you're insured" product that we wound up having.

And I also hope that Minister Woods will not delay overmuch in flipping the EQC arrangements so that people only have to deal with their private insurer and EQC just writes cheques in the background.

* Fletcher's is one of our members at the Initiative, so disclosure on that. We made a point of opting out of Fletcher's project management when fixing our house in Christchurch because we'd already, after September, sourced a builder who specialised in the kind of 1930s weatherboard place we had. We didn't want luck-of-the-draw builders assigned by some other project manager. In 2011, when Fletcher was given the job (I was at Canty at the time), it smelled funny to me. So I did some quick-style work looking at the effects of the earthquakes on Fletcher share prices and I just couldn't see anything there. I concluded that even if a centralised project management office wasn't the best idea, Fletcher didn't seem to be getting rents out of it.

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