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EQC defends Fletcher Building's role in Canterbury repairs

Fletcher not abusing its role running Canterbury home repairs, EQC says

By Paul McBeth

Dec. 5 (BusinessDesk) - Fletcher Building, the country's biggest listed company, isn't abusing its position as the Earthquake Commission's go-to guy for home repairs in Canterbury, and is providing "satisfactory value for money."

EQC chairman Michael Wintringham told Parliament's finance and expenditure committee that Fletcher's role managing the repair programme has met the government-backed natural disaster insurer's criteria around cost, quality, timeliness and safety.

"On the basis of that assessment I have no reason to doubt that we are getting satisfactory value for money," Wintringham said. "The transaction and administration cost of running two PMOs (project management offices), as well as the fact that both would be seeking labour from the same labour pool meant that the advantages would probably be marginal."

Fletcher manages EQC's repair programme for homes with damage of between $15,000 and $100,000. Earlier this year Fletcher was forced to defend its track record in Christchurch against labour union claims it was profiteering by cutting pay rates for painters and plasterers.

The construction company's dominant position in the country's building sector is set to come under government officials' gaze as part of plans to investigate the industry's cost structure. The study is part of a wider response to getting a handle on the affordability of New Zealand homes.

EQC chief executive Ian Simpson said the cost of repair jobs may come under pressure when private insurers come to the market next year, and start competing for the same labour pool of 70,000 tradespeople and driving up wages.

"Having two PMOs would fight over that same resource, and in our view would increase the costs rather than decrease," Simpson said. "When the private insurance sector does kick off, and it will be early 2013, that's our next big risk."

The final repair cost for some 26,000 homes fixed so far has been about 15 percent above initial assessments, mainly due to the later quakes, he said.

"There's only 1 percent difference between EQC's assessed cost of value and the actual final repair cost that's given by the contractor," Simpson said.

Fletcher shares fell 0.9 percent to $7.84, and have rallied 30 percent this year. The stock is rated an average 'outperform' based on 11 analyst recommendations compiled by Reuters, with a median target price of $8.275.


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