Fletcher rejects $750m pipe repair claim
CEO says Perth leak issue is an installation failure and will cost $50-$100m to sort
Fletcher Building chief executive Ross Taylor has blamed installation problems for the leaky pipe issue, dismissing as “sensationalist” an Australian builder’s claim of at least $750 million to fix failures.
Speaking to analysts and the media yesterday, Taylor said the company was committed to helping the industry get to the bottom of the Perth plumbing failures and denied builder BGC’s financial estimate.
Scenarios that better align with the current evidence suggest that an industry cost to repair affected Perth houses could be a fraction of that, something in the order of $50m to $100m, Taylor said, stressing that wasn’t the liability of Iplex alone.
“We have been supporting customers and homeowners with our $15m fund while causation, best fix methods and an industry solution are developed. We dispute many aspects of BGC’s presentation. There are no abnormal leak issues on the pipe installed on the East Coast of Australia. We are not aware of any issues from this resin in other geographies.
“Evidence points to installation as the reason leaks are occurring in some houses in Perth, and that installation practices have deteriorated over time,” he said.
If a failure rate of 25 per cent occurred in 17,500 Perth homes, that might cost the sector $50m, Taylor said. If a 50 per cent failure rate was assumed for those 17,500 homes, that might cost $100m.
Given failures were progressive, those costs to the industry would likely spread over several years, he said. Taylor named four poor installation practices in Perth:
● Over-bending of pipes where elbows were required if pipes were bent at certain angles;
● Inadequate movement was allowed for, where a pipe was fixed in the wall through rigid mortar;
● Poor and at times non-existent lagging or wrapping;
● Damage and workmanship issues, with pipes bent across metal nails and kinked, causing stress points.
Despite BGC’s attempts to shift blame, Iplex Australia and Fletcher would help the industry resolve the failures, he said.
“We will continue to scientifically work through the causation of the failures and support the industry to put in place the best solutions for affected homeowners. BGC’s allegations are unfounded. Their view on causation has changed over time. Our independent expert advice is that the methodology and hypothesis BGC used is gravely flawed and their findings unsupported,” Taylor said.
A product recall was not justified and would create needless disruption to unaffected homeowners with perfectly good pipe and pipe installations, he said.
Significant plumbing failures were only evident in Perth, despite the same quantity of pipe being sold nationally outside of that city.
That pointed to region-specific installation practices as the issue, Taylor said.
Fletcher had spoken with its major east coast product merchants, builders and plumbing contractors who were by far the biggest users of Pro-fit pipe and therefore provided a valid comparison to the use of Pro-fit in Perth over the same period.
They had not advised of any abnormal concerns, despite being aware of the circumstances in Perth, he said.
Iplex’s investigation has identified extensive evidence of poor installation. “For every plumbing failure we have seen, there is one or more readily observable installation failures that are in breach of Australian Standards, the Plumbing Code and/or Iplex’s installation instructions. These failures are of the type that generate stress and radial cracking.”
Of the homes investigated, 96 per cent had at least one installation failure. The remaining 4 per cent had failures which were either unrelated to the issue and were caused by rodent chew or fittings, or where it was found pipes were inaccessible.
The abnormal plumbing failure rates were only in Perth, he stressed.
“Over the last five months, we have funded the repair of 383 homes through our fund. For 170 of these homes, our expert plumbing team attended the house prior to repairs being done and carried out a full inspection and rigorous data capture on both the installation and to provide pipe for testing. In 100 per cent of these cases, the installation failure was of a type that generates leaks,” Taylor said.
BGC’s allegations that a resin change caused the substandard performance was unsupported. Iplex tested the BGC hypothesis with tests conducted by independent laboratories, Taylor said.
The photos BGC used in its presentation on Thursday showed poor installation, Taylor said, adding that he was amused by that because it indicated there were few situations where installation was done correctly.
The Australian builder says Fletcher Building’s Iplex leaky pipe failure will cost that company alone more than $750m to fix but the NZheadquartered business, in a trading halt over the issue, denies manufacturing defects.
And yesterday, the trading halt was extended until Monday.
BGC forecast loss and damages in excess of A$709m ($754.9m) and also said problems were not confined to Western Australia.
Rohan Koreman-Smit and Paul Koraua of Forsyth Barr released research on Thursday saying BGC had fired the first salvo over the issue.
“We found BGC’s presentation to be credible. Fletcher continues to state its own investigations point to an install issue, but it has not yet produced the same level of evidence. Both the WA building regulator and the Australian Competition and Consumer Commission are investigating, and BGC will present its findings to them in two weeks,” the analysts noted.
Ultimately, the final determination about the failure cause would be made by the regulators.
“We expect a negative share price reaction when Fletcher starts trading with the severity dependent on the credibility of Fletcher’s rebuttal,” Koreman-Smith and Koraua wrote.