WA leaky pipes fix could hit $1 billion: BGC

One of the state’s biggest home builders BGC has called a $180 million deal to fix leak-plagued homes inadequate, claiming the true cost could balloon to more than $1 billion.

Under the settlement agreement, Iplex Australia – owned by Fletcher Building Australia – is expected to spend about $150 million replacing faulty polybutylene pipes, with the state government chipping in $30 million.

What you’d rather not see in your newly built home: Of 471 BGC homes completed in the second quarter of 2020, 245, or 52 per cent, experienced a burst, the builder says.

While the state’s expenditure is capped, Iplex’s is not.

At the time of the announcement on August 30, BGC accused Fletcher Building of failing to address the true remediation cost and of offshoring its assets to its parent company in New Zealand.

Speaking to WAtoday this week, chief executive Danny Cooper said to completely re-pipe the 2900 homes across WA that have already experienced bursts (1670 of those BGC-built), at $80,000 a house, would cost $230 million.

He said re-piping what Fletcher itself estimates is 15,000 homes with faulty pipe installed would cost $1.2 billion.

“You can spin these numbers any way you want, in terms of what the future holds or how much will burst or won’t burst,” Cooper said.

“We have a view, they have a view – but our modelling shows it will be a big number, and I’m concerned about the size of that number and whether or not this deal really addresses the sort of risk around that number.”

BGC’s refusal to drop litigation launched against Iplex in August excludes it from getting any money from the agreement, despite BGC homes making up 65 per cent of homes impacted.

Under the state government solution, homeowners who experience one leak will be eligible for a repair and ceiling re-pipe, with a full re-pipe offered after three or more bursts.

According to data BGC supplied to this masthead, of 471 BGC homes completed in the second quarter of 2020, 245, or 52 per cent, experienced a burst.

Fletcher Building, meanwhile, estimates its funding allowance based on a leak rate of about 35 per cent, which it calls “higher than current or expected trends”.

While BGC is not participating in the agreement, Cooper said the company had spent $18 million undertaking complete ceiling re-pipes hoping to mitigate safety issues.

“This is disastrous for WA homeowners and builders and the WA Government has simply kicked the can down the road,” he said.

“We do not see the deal as a long-term solution.”

Fletcher Building says expenditure will be phased across five years – $40-$50 million in year one and $15-$35 million per year thereafter.

This cash flow has been calculated based on BGC joining the agreement; if it does not, cash outflow is expected to be lower.

But Cooper expressed concern the offshoring or repatriating of Fletcher assets could impact the long-term funding available.

“We’ve got Fletcher Building saying ‘BGC, you guys are sensationalist, you’re blowing the problem out of proportion, it’s a $100 million problem [and] we’ve got plenty of cash’. But we’re saying this isn’t a two-year deal, this is a 20-year problem.

“If I take the deal I get some short-term funding in these homes, but I lose the ability to ensure that Fletchers maintain the appropriate assets in Australia, we cannot litigate, defend ourselves or support consumers in their quest for a solution through a class action.”

Fletcher Building has staunchly denied all allegations made by BGC.

“Fifteen months of research shows not all homes will leak, and not all homes that leak will require full home re-pipes,” an Iplex spokesperson said.

“Under the agreed industry response work program, Iplex has estimated its share of costs to be $155 million – as we have also said publicly, if costs exceed the estimate, Iplex will continue to meet 80 per cent of those costs.”

They also said Iplex joined the industry response voluntarily, and that BGC’s accusations the company was attempting to avoid its financial obligations were incorrect.

“Suggestions Iplex would seek to avoid these commitments are illogical and not based in fact,” the spokesperson said.

According to the Fletcher Building Annual Report 2024 published on August 21, the group has an annual revenue of $2 billion, net assets of $1.2 billion and annual trading cash in excess of $160 million.

“Iplex’s obligations under the [agreement] are to be guaranteed by the Fletcher Building Australian group,” they said.

“We have operated in Australia for many decades and have more than enough annual cash flow to meet Iplex’s annual [obligations under the agreement].”

Commerce Minister Sue Ellery said Iplex Australia had provided assurances to the state government that it was able to meet the annual spend anticipated under the agreement.

“As part of the finalisation of the industry response, Iplex will procure guarantees from Fletcher Building Australia, as the ultimate Australian holding company of Iplex, and its main subsidiaries, on terms acceptable to the government,” she said.

The formal agreement is currently being reviewed for signing by builders and the manufacturer.

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