How did Fletcher Building get to this?

For decades Fletcher Building was the face of New Zealand construction. Employing 20,000 people globally including hundreds of New Zealanders, Fletcher Building had a N.Z.$9 billion revenue in 2016. It was involved in the largest building construction projects in New Zealand. So how did Fletcher Building get things so dreadfully wrong.

As a warning of how serious the situation is trading was halted on Fletcher shares on Thursday 8 February 2017 and then extended it on Monday 12 February. When trading halted the price per share was N.Z.$7.70, down from N.Z.$10.00 in February 2017.

The causes of Fletcher Building’s woes are numerous and no one single cause is entirely to blame. Across several different parts of the business – acquisitions, the Christchurch earthquake recovery, requiring contractors to accept full liability – things have gone wrong, which have added up to the current mess. But to understand the mess we need to look at these causes briefly:

  • Fletcher Building had a number of acquisitions, such as the Christchurch Justice Precinct and Auckland’s new International Convention Centre
  • Fletcher had some huge cost blow outs that have severely hampered a number of significant projects which have not gone entirely to plan

So, how rare it is to have the Chair of such a high profile company admit – though certainly very welcome in terms of transparency and honesty – that some frankly incompetent decisions had been made. But that was Ralph Norris, who in his prior life was Chief Executive of AIr New Zealand and Commonwealth Bank of Australia, Managing Director of A.S.B.

The causes of Fletcher Building’s massive slump can be attributed to a number of causes. However it was admitted that some of their acquisitions have turned into liabilities.  Their programme of work has been totally cut back and when the existing programme stops, will dry up completely. Quite where that will leave hundreds of workers I have no idea, as a large number of people  will be in need of work.

I have concerns about who will fill the void with the with the withdrawal of Fletcher’s Building and Interior unit. Foreign companies might be willing to do the work, but are not so likely to linger when they have finished. Nor are they so likely to have the same values and empathy for their New Zealand clients and the New Zealand building sector at large.

Fletcher Building’s woes extend to the Kiwi Saver schemes that invested in it and thereby thousands of New Zealanders. The extent to which it’s losses will impact on these schemes is not known as there might yet be further losses to come. It will come as a shock to the people who invested in the schemes to ensure that they have funds to dip into in retirement.

The next several days and weeks are going to be critical. The financial year ends on 31 March, at which point I believe that the true nature of the crisis at Fletcher Building will become clear.

Questions raised about Chinese tradies building Auckland hotel

It has come to my attention that a Chinese company wants nearly 200 visas for short term tradespeople to come to New Zealand and finish a hotel project in Auckland.

Questions should be asked nevertheless. Anyone handling such a major construction project should know that it will have substantial and complex labour requirements.

I have concerns about this. Will Chinese labourers and the company they work for:

  1. Adhere to New Zealand labour law
  2. Not take dangerous short cuts in building the hotel that might compromise the physical structure
  3. Pay them New Zealand wages instead of whatever they might get in China

My concerns stem from a complex set of interacting issues that have arisen in New Zealand’s building sector over the last few years. They include shoddy earthquake repairs in Christchurch and Kaikoura, overworking of labourers by some companies, the importation of questionable steel from China and comments by a few non-New Zealand employers suggesting that they do not care or respect New Zealand laws and the custom of this country.

That is not okay. And New Zealand criminal law should reflect this in its sentencing regime.

New Zealand immigration need to be careful handling this. 175 individual visas need to be processed, but I also assume at some point the eventual holders of those visas will be screened to determine their suitability for the job. How will we know the credibility of the applicant in terms of whether they have a criminal record, their qualifications? Will they have some sort of insurance cover in case of an accident at work, elsewhere, ill health or being a victim of crime?

I accept that it might not be possible to find that many trades people in New Zealand to do the work without slowing down other projects, such as those related to the earthquake recovery in Christchurch.

I expect that somehow the trades people that come will have to demonstrate knowledge of New Zealand building practices, occupational safety and health before they can start work on the site. I expect that this will be done in New Zealand under the supervision of Department of Labour staff and the expectations made clear. In making this expectation, it is appropriate that New Zealand Immigration, Department of Labour and appropriate agencies have oversight of such a large application for visas.



No charges for C.T.V. building engineers

CTV building before 22 February 2011 and after (PHOTO: 3 NEWS)

At 1251 hours 22 February 2011 in an earthquake that could be technically classified as an aftershock of the 04 September 2010 magnitude 7.1 Canterbury earthquake, the Canterbury Television building on Madras Street, Christchurch collapsed. 115 people lost their lives. Investigations into who knew what about the status of the building found three people potentially culpable for its failure.

The C.T.V. building right from its design and construction was a fundamentally flawed building. On 26 December 2010, a violent magnitude 5.0 aftershock struck right under central Christchurch. Afterwards the C.T.V. building was given a second green sticker, siginalling it had been inspected and no damage likely to threaten the integrity of the building or peoples safety had been detected. This was a fatal mistake.

Today however, the New Zealand Police announced that they were not going to charge anyone over the C.T.V. building failure. The reasons given were:

  1. The threshhold of culpability with the probable charge of manslaughter was too high – the Crown had to prove that the conduct of any defendant charged was so bad as to warrant the distinction of being considered a serious crime
  2. The length of time that had passed between building and the deaths occurring

I accept that the threshhold required to prosecute in negligent manslaughter is very high. To do so one must be able to prove that the building would have failed if it were not for the design flaws.

However there are people who should have been looked at more closely than they were:

  1. Gerald Shirtcliffe (William Fisher), who faked a whole degree based another William Fisher in England who had finished a degree in civil engineering – completely unqualified to be working in the building industry at all and known to have made serious errors in his supervision of the C.T.V. building’s construction
  2. Alan Reay, who designed the building was working out of his depth and knew it
  3. David Harding, the engineer who was employed by Alan Reay Consultants failed to disclose at an Institute of Professional Engineers New Zealand disciplinary hearing his involvement in the C.T.V. building design

I further think that the building code in 1986 was probably strict enough that if followed, the building might have still had deaths in it, but not a catastrophic collapse killing 115 people. Then the specifications set down in the then building code would have designed with the understanding that Christchurch is not immune to earthquakes, that seismic waves can be amplified passing through certain strata and that the seismic waves also induce vertical movement as well as side to side shaking.

A case does exist, nonetheless for amending the law to enable such suggested prosecutions to happen. The investigation should be conducted with the support of a technical expert – qualified I.P.E.N.Z. registered engineer, or other suitable person – who shall have access to whatever files are relevant.

It will not bring back the dead. It will not change the fact that on the day of the quake there was also uncertainty about who should be leading the rescue effort. But it will hopefully ensure that the C.T.V. failure on 22 February 2011 is the last of its kind in New Zealand and that New Zealanders pay due regard to such matters in the future.

Time running out for Wellington to reinforce buildings

In February 2017, the Government set a deadline of the end of February 2018 for Wellington buildings with unreinforced masonry to have done appropriate strengthening work. With less than 6 months to go, not one of the 98 building owners singled out have completed the work and Wellington City Council is starting to get uncomfortable about it.

The deadline was imposed in the wake of the Kaikoura earthquake which affected numerous buildings in Wellington. A few have had to be demolished. Others have had to be closed whilst urgent strengthening work is done. Some needed cosmetic repairs and were able to open again relatively quickly.

But there are 98 building owners out there who – if an earthquake struck Wellington dead on tomorrow – would be in breach of their duty of care to anyone walking past their building should it collapse. In fact the building does not even need to collapse. Below are photos I took of quake damaged parapets in Christchurch after the September 2010 and February 2011 earthquakes. All of these buildings shown below were red stickered  – i.e. they had suffered damage that meant it was not safe to enter.

39 of the 185 people killed on or as a result of the 22 February 2011 aftershock were struck by collapsing parapets. These parapets might not have been initially weakened in the first aftershocks following the 04 September 2010 earthquake. However by the time the aftershock sequence reached February 2011 there would have been thousands including numerous magnitude 5.0+ aftershocks, all of which would have contributed to their weakened state.

This building was red stickered on 04 September 2010 and was demolished on 24 February 2011.

Damage to building front. Note the cracks below the damaged masonry. (R. Glennie)

The tragic consequences. One of the 39 deaths happened here.

I understand that it will be expensive and that this is a burden on building owners. Perhaps, but you knew when you purchased this building – if you did you homework – that it would be vulnerable in an earthquake. Now, having had two magnitude 7.0+ events causing significant damage in a decade, surely you have noticed the public mood for accountability has changed?

The engineer who checked the building that collapsed in the bottom photo must have trouble sleeping at night in the knowledge he said it was safe, not once, but twice – even when there were staff walking around in the building with hard hats on. Perhaps it is because the Sunday programme exposed what happened and people want answers.

The urgent case for accelerating Wellington’s quake readiness

After the Christchurch earthquake. What we did not recognize in that sequence was that just because a seismic event one order of magnitude lower than that of the original large event had not happened did not mean it could not happen – we would just take most of six months to find out.

The sequences of aftershocks certainly kept reminding people that the sequence would take some time to ride out, with notable aftershocks on 04, 13 and 19 October 2010. All of these caused brief power outages throughout the central business district, liquefaction and an end to trading at numerous small businesses in older buildings. An aftershock on Boxing Day 2010 permanently closed the Whitcoulls bookshop building in Cashel Mall, and it was not hard to see why with extensive cracks in the facade. The same aftershock should have forced the evacuation of the C.T.V. building, but did not – with dreadful consequences.

Wellington and Kaikoura are experiencing a similar pattern now. The initial burst of magnitude 6 aftershocks has gone quiet. Like Christchurch during its earthquake sequence, Wellington and Kaikoura have not quickly had an aftershock an order of magnitude lower than the original magnitude 7.8 event. Due to a logarithmic increase in energy release for every whole order of magnitude a magnitude 5.0 is about 32 times more powerful than a magnitude 4.0 at the same location and depth; a magnitude 6.0 is about 32 times more powerful than a magnitude 5.0 at the same location and depth and so on. Thus the absence of an aftershock in the magnitude 6.8-7.0 range means that quite substantial energy is being locked up in the sequence. Because of the large area affected by the original earthquake, it is impossible to know where such an event could occur.

Only time will tell how this aftershock sequence plays out.

Wellington and Kaikoura need to keep this in mind as they move forward from 14 November 2016. Both places need to remember there is no substitute for everyone getting out safely from a building after an earthquake. With that in mind there are going to be some painful arguments over whether to pull down high risk buildings that might look beautiful but are structurally unsound. Politicians will debate the costs of earthquake strengthening, not wanting to put the tenants under undue financial pressure or pass on to ratepayers. Councils and the Government have a duty of care to their taxpayers/ratepayers, visitors and anyone else in their jurisdiction on the day of a major disaster. By shirking their responsibilities they can be exposing themselves and thus their rate/taxpayer base by default to potentially massive litigation and/or criminal proceedings.

That is not okay.

Wellington City Council has started a programme of identifying at risk buildings. Depending on how earthquake prone they are, the W.C.C. is assigning the landlords 10, 15 or 20 year deadlines to bring their assets up to an acceptable standard. The 10 year deadlines are for the most at risk buildings, some of which are now probably closed indefinitely or have owners scrambling for indepth assessments so they can determine how they proceed. The recent and ongoing seismic activity will also hopefully have jolted owners of buildings in the other two categories to bring forward their planned assessments.

And if anyone is still in doubt, this piece of advice from the Ministry of Business, Innovation and Employment is worth remembering:

“Buildings with less than one-third of the strength of a new building have about 10 to 20 times the risk of serious damage or collapse when compared to a new building.”