Appendix 1: Steps in the home-repair process

Earthquake Commission: Managing the Canterbury Home Repair Programme.

This Appendix describes the steps in the home-repair process.

Assessing damage to houses

After a homeowner submits a claim for earthquake damage, the Earthquake Commission (EQC) first checks that the home is insured and covered for natural disaster damage under the Earthquake Commission Act 1993 (the Act).

EQC then assesses the damage to the house. Because of the many earthquakes in Canterbury, it is likely that there will have been multiple assessments of the damage done to the house.

The technology used by EQC to support the assessment process has changed during the home-repair programme. Paper forms were used after the 4 September 2010 earthquake, and iPad technology was progressively used for assessments after March 2011.

Assessing damage to land

Land damage caused by the Canterbury earthquakes complicates the repair or replacement of damaged foundations for some homes. This is because some damaged houses are on land assessed as TC3.19

The Ministry of Business, Innovation and Employment (MBIE) issued interim technical guidance on foundations for houses on TC3 land in April 2012, with an updated version released in December 2012.

To ensure that foundations are repaired or replaced using designs best suited to how TC3 land is expected to react in any earthquakes, EQC has been investigating soil conditions by drilling deep into the ground around or near residential properties.

EQC completed the drilling work on 21 December 2012. The information gathered will be analysed by geotechnical and structural engineers to design an appropriate foundation for each earthquake-damaged home in a TC3 area. After this work has been done, and if the earthquake damage is still under the EQC cap ($100,000 of damage), the claim will be transferred to Fletcher Construction for repair. EQC has to go through this process for about 10,500 homes before the foundations can be repaired or replaced.

The work EQC is doing to identify the soil conditions in TC3 land for foundation design purposes is different to the work it is doing to assess land damage. Land damage is not part of the home-repair programme.

The land claim for a home does not need to be settled before repairs start on a home. This is because damaged foundations, and any work necessary to fix the foundations, are considered part of the claim for the home.

Reinstatement of EQC cover

In 2011, EQC and the Insurance Council of New Zealand20 applied to the High Court for a declaratory judgment on when the $100,000 EQC cap is reinstated after a natural disaster.

In September 2011, the High Court ruled that EQC cover is restored after each natural disaster classed as an event:21

Neither the occurrence of, nor the making of a claim for, an event of natural disaster damage reduces the amount of cover available for a subsequent event of natural disaster damage …

This meant that for any natural disaster big enough for EQC to class as an event, EQC is liable for the first $100,000 worth of damage.

If possible, EQC uses information from house damage assessments after an event. When a current assessment from an event is unavailable, EQC uses other sources of information to estimate the damage from each event. This process, called apportionment, involves determining how much damage each event caused.

EQC refers all claims to the homeowner's private insurance company if the apportionment process shows that the cost of repairing damage to the house will be more than the cap for any one event.

If the apportionment process shows that the cost of repairing damage to the house will be less than the cap for each relevant event, the house is repaired as part of the home-repair programme – unless homeowners opt out of the programme.

Opting out

To opt out, the homeowner needs to fill out a form agreeing to be responsible for managing all aspects of the repairs to their property.

After receiving the form, EQC will contact the homeowner to arrange a meeting with the homeowner and their contractor. This is to agree on the scope of the repairs to be covered by EQC.

The homeowner arranges for the contractor to prepare a quote based on the agreed scope of work and sends the quote to EQC. EQC will then send a "Confirmation to Proceed" letter. This enables the homeowner to tell the contractor to start the repairs.

If a homeowner opts out of the home-repair programme, they are responsible for paying the contractor for the repairs. This may involve the homeowner paying the contractor for the repairs before the homeowner has received money for the repair from EQC. EQC will pay only for repairs that it has assessed as necessary and that fall within the requirements of the Act.

The latest stage that a homeowner can opt out is when Fletcher Construction is arranging to scope the work. When we were finalising this report, about 6350 homeowners had opted out of the home-repair programme.

Allocation of a claim to Fletcher Construction

If the claims for earthquake damage to the house are close to the EQC cap, the claims go through the apportionment process. The outcome of the apportionment process decides whether the repair will be managed by EQC or a private insurer. If the damage to a house is expected to cost between $15,000 and $100,000 for each event, EQC transfers a claim to Fletcher Construction for settlement through repair.

Allocation of a claim to a hub

EQC sends claims that are within the scope of the home-repair programme to Fletcher Construction. Fletcher Construction checks the claim against criteria to ensure accuracy and that settlement of the claim should be through the home-repair programme. The location of the house generally determines which hub will manage the repair. Fletcher Construction transfers the claim to the hub when the hub can accommodate the work.

"Welcome Pack" issued to homeowner

Before repairs begin on a house, Fletcher Construction sends a "Welcome Pack" to the homeowner. This pack includes information on the home-repair process and a commencement form. The commencement form needs to be signed and returned by the homeowner. By signing, the homeowner confirms that they understand the repair process and their obligations.

Appointment of a contract supervisor and contractor

The hub assigns the claim to a hub-based Fletcher Construction contracts supervisor (the contracts supervisor) and the contractor who will be doing the repair. The hub decides which contractor will do the repair based on the workload and work rate of the contractor. Usually, a given contract supervisor is responsible for managing the repairs done by a given contractor for a given hub.

The homeowner can choose a contractor to do the repair when Fletcher Construction is arranging to start the work. Fletcher Construction must have accredited the contractor (see Figure 21) for the contractor to be able to do the repair as part of the home-repair programme.

Figure 21
Fletcher Construction's process for accrediting contractors

Fletcher Construction runs a contractor accreditation process. A contractor has to be accredited before doing any repairs for the Canterbury Home Repair Programme. This accreditation process involves:
  • reviewing the application form from a potential contractor;
  • reviewing and evaluating the contractor's safety policy and health and safety plan; and
  • an interview between Fletcher Construction and the contractor.
There is also a review of the competence of the contractor to do the repairs. To determine the competence of a contractor, Fletcher Construction looks at the qualifications of the contractor, their capabilities, experience, company stability, and references.

The aim of the accreditation process is to ensure the use of qualified and experienced tradespeople to uphold professional standards in the home-repair programme. At the time of our audit, more than 1200 contracting firms had been accredited.

Scope checked by visiting property

After assigning the contractor, contractor supervisor, and hub-based EQC representative to a claim, the hub organises a meeting (called joint scoping) between the homeowner and these three people. This joint scoping meeting confirms the damage caused by earthquakes and the strategy to repair the damage to the house. The meeting will also discuss other matters, such as whether the homeowner needs to move out during the repairs.

Homeowners can request a copy of the scope of works and any subsequent changes to the scope. EQC will not include costs in the information provided.

Joint scoping has been done since June 2012 in a pilot project and has been progressively implemented by all hubs. Previously, the contract supervisor and hub-based EQC representative would separately visit an earthquake-damaged home.

The feedback we received from both EQC and Fletcher Construction was that the joint scoping process was positive and successful.

Internal audit work within the home-repair programme has identified that, in November 2012, there was variation in the implementation of joint scoping of work in hubs from 10% of work to 95% of work. EQC told us that joint scoping is only one of the options available to repair hubs to validate scope and variations, and it is up to hubs to determine their own strategies on when to jointly scope work.

It was clear from our visits to hubs that there was considerable variation in the extent to which all work was jointly scoped.

The contractor uses the decisions made at the joint scoping meeting to provide a quote to Fletcher Construction. A hub-based Fletcher Construction quantity surveyor checks the quote against prices in a rates ceiling schedule (see Figure 22). If it is under the rates ceiling schedule, the quantity surveyor sends the quote to the hub-based EQC representative for approval to issue a work order.

Figure 22
About the rates ceiling schedule

EQC and Fletcher Construction use the rates ceiling schedule to control the cost of repairing homes. It contains information on the amount that EQC is willing to pay for each type of repair.

By using information from contractor quotes, trends noticed by quantity surveyors, and EQC representatives, Fletcher Construction and EQC keep the rates ceiling schedule up to date with changes in the Canterbury marketplace.

The rates ceiling schedule is to be reviewed and updated at least quarterly.

If the quote is higher than the rates in the rates ceiling schedule, the quantity surveyor communicates with the contractor to reduce the cost. If unsuccessful, the quantity surveyor gets a second quote from a different contractor. Sometimes, a repair cannot be done under the price in the rates ceiling schedule. In those instances, the hub-based EQC representative needs to approve the repair (they carry out their own check on whether the quote is fair and reasonable).

Before the contractor begins to repair the home, the contractor has to submit a site-specific health and safety plan and a programme of work for approval from the contract supervisor.

Construction phase

The contract supervisor is responsible for managing the relationship with contractors, checking the contractors' performance, and managing the relationship with homeowners. During the repair, the homeowner can contact the contract supervisor with any questions or matters to raise.

The contract supervisor checks the progress of the repair, visits the site at least once, and ensures that the contractor is following the health and safety plan. If the contract supervisor identifies any matters, they follow them up with the contractor. Figure 23 describes the process for monitoring the performance of contractors further.

Figure 23
Monitoring the performance of contractors

Fletcher Construction monitors the performance of contractors. The hub-based contract supervisors are expected to complete a review of each contractor's performance every six months. There are regular meetings between hub staff and the contractors who work for each hub.

Fletcher Construction operates a "three strikes and you are out" policy. If a performance matter arises, there is a meeting with the contractor to resolve the matter, and Fletcher Construction issues a performance improvement notice. When a contractor has a series of performance matters that cannot be resolved, Fletcher Construction initiates the "three strikes" procedure. A written warning is given first, a final written warning second, and then a notice of dismissal leading to de-accreditation. Performance matters include poor quality of work and breaches of Fletcher Construction's guidelines, procedures, and rules.

The six-monthly performance review criteria include homeowner satisfaction, safety management, management and supervision, quality of work, and competency of staff.

A variation to the scope of the repairs occurs when a contractor discovers more earthquake damage while repairing a home. For example, a contractor might lift the carpet and see more earthquake damage. The contractor submits a variation request after discovering and describing the extra damage. The supervisor then checks the variation request.

After the contract supervisor has checked the variation, the contractor submits a quote to repair the extra damage. A quantity surveyor then checks the quote against the rates ceiling schedule. This is then approved by the hub-based EQC representative, after they have either viewed the damage or viewed photographs of the damage. The approved variation is issued to the contractor.

The repair cost sometimes goes over the EQC cap during repairs. When this happens, the repairs stop until EQC gains approval from the homeowner's private insurance company for the repairs to continue. EQC and the private insurance company spilt the cost according to their liability.

Completion

When the contractor has completed the work, they notify Fletcher Construction. The contract supervisor arranges for an inspection of the repair with the contractor and homeowner present. If the inspection identifies any work that is incomplete, the contractor will rectify the work.

Once the repair has been verified as complete, the contractor receives a practical completion certificate from Fletcher Construction. The practical completion certificate confirms that the contractor has completed the repair to the standard required by Fletcher Construction.

After Fletcher Construction has issued the practical completion certificate, there is a check by the quantity surveyor of the invoice from the contractor and then payment is approved minus any retention (usually 5-10% of the repair cost). Part of the payment is retained to ensure that there is money available to cover any further repairs that might be necessary if there are defects in the work.

90-day defect liability period

A 90-day defect liability period starts after Fletcher Construction issues the practical completion certificate. During this time, if the homeowner finds any repair to be substandard, Fletcher Construction will verify it. If Fletcher Construction agrees, it will arrange for remedial work.

After the 90-day defect liability period has passed, the money retained is paid to the contractor and EQC will consider the homeowner's claim/s settled.

All claims lodged with EQC are subject to an excess. EQC calculates the excess at the end of the home-repair process and sends an invoice to the homeowner. The excess is either $200 or 1% of the cost of the repair, whichever is greater.

In April 2012, the Governor-General signed an Order in Council that made it clear that EQC could invoice homeowners to collect the excess. The Order in Council also suspended the requirement to settle claims within one year if EQC is settling the claim through repair. The Order in Council applies retrospectively from 4 September 2011.


19: TC3 is land that is likely to be significantly affected by liquefaction and lateral movement in an earthquake.

20: The Insurance Council of New Zealand represents 27 insurance companies that collectively hold 95% of all fire and general insurance policies in New Zealand. The Insurance Council of New Zealand's website is www.icnz.org.nz.

21: Re Earthquake Commission [2011] 3 NZLR 695 (HC) at [18].

page top