Union thugs alone are not to blame for high construction costs

The Weekend Australian, September 3, 2016

Several years ago in Brisbane, construction giant Hutchinson Pty Ltd was hired to build a shopping village. Building firms that build projects don’t build them, meaning they don’t hire people to pick up shovels, drive trucks and lay concrete. Instead, building firms are “head contractors”, giant contract management businesses, and what they do is secure contracts to build things, then subcontract all the building work to smaller businesses while taking a percentage of the build cost as their reward. These smaller businesses, called subcontractors or “subbies”, are the businesses that actually do the building work, using their own teams of employed workers.

After Hutchinson secured the contract to build the village, the company engaged subbies. There would have been subbies to do the earthworks, the concrete, the scaffolding and so on. One subbie was engaged to do the tiling and given a date on which work was meant to start.

However, before work began, a manager at Hutchinson asked the subbie for a copy of its enterprise bargaining agreement and to attend a meeting with the construction union. The subbie queried the request. The firm already had an EBA with its staff, it said, so thanks but no thanks. (Typically, accepting a union EBA would raise wage costs by 20 per cent to 30 per cent.)

Soon after, the union gave a “direction” to Hutchinson not to use the subbie and, accordingly, Hutchinson sent the subbie a letter confirming that without a union-endorsed EBA, the subbie would not be working on the project.

Last month, Judge Salvatore Vasta of the Federal Circuit Court ordered Hutchinson to pay $25,575 for breaching the Fair Work Act. A Hutchinson contracts manager and another team leader were each fined $1800 individually for their personal contraventions. A final written judgment is yet to come but, importantly, the matter arrived in court only because of the efforts of the Fair Work Building and Construction. This is the body that, if certain legislation is passed, will become the Australian Building and Construction Commission.

Now, $25,000 is chump change for a company such as Hutchinson. Additionally, the builder is unlikely to lose any sleep over reputational damage. What is described above is standard practice for the building of all major developments in this country in the construction, resources, mining, maritime and other sectors; indeed, anywhere the government is the end client or shareholders can be slugged for the cost of a project. The only unusual aspect of this case is that it made it to court.

By now you may be wondering why Hutchinson would go along with the union. Why wouldn’t the company just hire its subbies without demanding union EBAs that bump up the cost of the build? There wouldn’t be a strike; all of the workers are employed by subbies, remember, and even if these people were corralled into action, Hutchinson could recover any cost through penalties in the contracts.

The answer is more likely to do with money. When the profit of a business is a fixed percentage of the build cost, it means the higher the build cost, the higher the profit, and, voila, here is why Australia is known as the most expensive construction destination on the planet. All of our problems begin with the head contractor, who takes the initial decision to operate the project as a “union job” and forms a partnership with the union, which then goes around asking all the subbies to sign EBAs and have “relationships” that include the subbies paying for all the workers to compulsorily join the union.

The Senate is deliberating whether to allow Malcolm Turnbull his much-desired ABCC. When talking about the need for the commission, government types love to wax lyrical about union thuggery. This part of the problem is all we hear about. Sure, this thuggery is real and must be stamped out, but it is in effect only when enforcing the policy of the head contractor. The head contractor makes the decision to do the project as a union job and tells the union who the subbies are so they can be scheduled for intimidating visitations.

Using the example above, senators could ask the Prime Minister how the ABCC might fix the problems we have permanently. Would the focus be solely on the union thugs, on the building site, or would it also be on the corporate thugs, such as some of those in the boardrooms of big building companies?

Further, under competition law, Hutchinson’s conduct is probably considered “bid rigging” and “exclusive dealing” and prohibited, with significant penalty for breaches. Sadly, a loophole allows it all provided it is to do with an EBA. The loophole was meant to protect workers when collectively bargaining but is being exploited by companies, and the loophole must be closed to catch them. Without this change, the ABCC could struggle to do terribly much, and when Labor returns to power, what little gains made will be reversed 10 times over, with interest on top.