Part 1: Introduction

Earthquake Commission: Managing the Canterbury Home Repair Programme.

1.1
In this Part, we describe:

About the Earthquake Commission

1.2
EQC is one of many public entities responsible for supporting people after the Canterbury earthquakes. EQC is responsible for insuring residential buildings that have private insurance cover (for simplicity in this report, we use the terms houses or homes) against damage from a natural disaster.

1.3
EQC covers a capped amount – $100,0001 worth of damage for each natural disaster that is big enough to be classed as an "event" (see Appendix 1).2 The amount of $100,000 is set in the Act. If the cost of damage to an insured house exceeds this amount, EQC will pass the homeowner's claim to the private insurance company and that private insurance company will handle the claim. Determining how much damage was caused by each earthquake is called "apportionment".

1.4
EQC also provides cover for land and contents. These other responsibilities are outside the scope of this audit. More information about EQC's roles and responsibilities and claimant obligations and entitlements can be found in the Act (available at www.legislation.govt.nz).

1.5
Under the Act, EQC can settle insurance claims for damage to houses in a number of ways:

  • paying cash to the homeowner (cash settlement);
  • replacing the house;
  • reinstating the house – that is, restoring the house to the condition it was in before the natural disaster; and
  • relocating and then reinstating a house.

1.6
The Act also states that EQC "shall not be bound to replace or reinstate exactly or completely, but only as circumstances permit and in a reasonably sufficient manner."3

1.7
This report is about our performance audit on EQC's use of the reinstatement option to set up a home-repair programme.

1.8
After the 4 September 2010 Canterbury earthquake, EQC was asked to set up a home-repair programme for more than 50,000 damaged houses. The number of damaged houses increased to more than 80,000 after more earthquakes.

1.9
The objectives of the home-repair programme were to:

  • manage inflation in the cost of repairs;
  • manage the quality of repairs;
  • avoid the loss of equity in Canterbury's housing stock; and
  • avoid depopulation and social distress.

1.10
At the same time, the home-repair programme was expected to include emergency repairs to 47,391 homes (at a cost of about $78 million) and install heating in 18,740 homes (at a cost of about $76 million). These initiatives diverted attention and resources away from home repairs in the first year or so of the programme. The initiatives were intended to reduce the effects of cold and damp on occupants.

1.11
The scale and complexity of this activity was unprecedented in New Zealand. According to EQC, the home-repair programme was "built from scratch under great pressure" and no other country had attempted such a programme. EQC's work has been further complicated by subsequent earthquakes, land "zoning" decisions, emerging guidance on repair techniques, and a High Court decision requiring EQC to reinstate its cover after each earthquake.

1.12
Appendix 2 sets out more information about the Government's expectations of EQC and EQC's preparedness, before the earthquake in Canterbury on 4 September 2010, for a large-scale natural disaster.

1.13
Appendix 3 sets out a timeline outlining the main milestones in the history of the home-repair programme.

1.14
The circumstances that EQC and homeowners were in, particularly in late 2010 and early 2011, were complex and chaotic. Complications did not arise in a linear sequence but with many complexities coinciding, including multiple types of land damage, land remediation, dwelling repairs, and multiple earthquake events. According to EQC, the earthquakes posed unprecedented challenges to government policy and operations.

Our expectations of the Earthquake Commission

1.15
Overall, we expected all public entities involved in the Canterbury recovery and rebuild to be both effective and efficient in their procurement work.

1.16
We expected EQC to design and manage the home-repair programme effectively (repairing people's homes to the required quality within acceptable costs and time frames) and to carry out that programme efficiently.

1.17
We expected EQC to support the effective and efficient management of the home-repair programme by:

  • clearly defining its contract and risk-management processes and procedures;
  • assessing and managing risks through its contract with Fletcher Construction Limited (Fletcher Construction is the private company that is providing project management services to the home-repair programme); and
  • effectively communicating with external and internal stakeholders, including homeowners.

How we carried out our audit

1.18
To carry out our audit, we:

  • interviewed EQC staff located in Wellington and Christchurch and Fletcher Construction staff in Christchurch;
  • reviewed and analysed more than 300 documents, mostly EQC documents;
  • reviewed and used the findings of two EQC internal audits;
  • met with representatives of the Addington Action Group, Canterbury Communities Earthquake Recovery Network, TC3 (Technical Category 3) Residents Group, and Te Whare Roimata;
  • visited six "repair hubs" (temporary centres from which home repairs in a locality are managed) to meet with EQC and Fletcher Construction staff and review files for 30 homes, then met with the owners of four of those homes;
  • obtained information about project management costs in other building and construction projects; and
  • obtained relevant information from the Office of the Ombudsman, the Human Rights Commission, and the Ministry of Justice.

1.19
We carried out our audit in late 2012 and during 2013.

What our audit covered

1.20
EQC's main objectives are set out in section 5 of the Act. They are to:

  • administer the insurance against natural disaster damage provided for under the Act (EQC handles residential claims, not commercial claims);
  • help research and educate about matters relevant to natural disaster damage; and
  • manage the Natural Disaster Fund, including arranging reinsurance.

1.21
Our audit covered EQC's responsibilities for the first objective, excluding land and contents claims.4 We included repairs that were within the home-repair programme, not the home-heating or emergency-repair initiatives5 that EQC was also asked to provide.

Considering effectiveness and efficiency

1.22
Determining whether EQC has effectively and efficiently managed and carried out the home-repair programme means considering what is appropriate in the circumstances. This means taking into account costs, practicalities, and competing and changing priorities. For example:

  • What is a reasonable level of preparedness for a large-scale natural disaster?
  • How much scenario planning can be performed?
  • What are the implications of different response and recovery time frames on costs and achieving a programme's outcomes?
  • What priority should be given to:
    • repairs?
    • effective communication?
    • integrating important processes throughout and between organisations in a programme (such as risk management and complaint processes)?
    • setting up essential systems, controls, and support to manage risks of waste and inconsistency?

1.23
These are not easy questions to answer and they can be affected by policy decisions (which we do not comment on). The judgements about effectiveness and efficiency set out in this report are our own.

1: All figures exclude goods and services tax (GST).

2: In this report, we refer simply to "earthquakes" rather than "events" or "earthquakes large enough to be deemed an event".

3: There has been much public comment about what these requirements might mean in practice for discrepancies in floor levels, repairs to wiring in older homes, installing insulation, and removing asbestos.

4: By 30 April 2013, EQC had received 120,337 land claims and 185,518 contents claims arising from the earthquakes in Canterbury.

5: See www.eqc.govt.nz/news/eqconnects-21-april-2011.

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