Abbott's East West infrastructure test

How Tony Abbott handles the building cartel-style arrangements underpinning the East West Link project will be a key test, judged closely by the six non-major party senators.

The Victorian East West link is set to test the Commonwealth and Victorian governments’ plan to slash the cost of infrastructure and commercial building in Australia. The two major Australian commercial builders, Lend Lease and the embattled Leighton Holdings, are key players in what is an almost unbelievable saga.

Last year the Victorian government required all builders tendering for Victorian government contracts to adhere to a set of guidelines and a code. In short, the current practice of unions having a big role in controlling the way building sites work by having a final say on what sub-contractors can be employed is over.

Victoria was blocking the cartel-style agreements between building unions and the big commercial builders that had curbed commercial building productivity and lifted costs. It was highly beneficial for both the companies and the unions but not for taxpayers, who were forced to meet the higher bills.

Queensland and New South Wales followed Victoria in implementing similar guidelines. In Victoria, Lend Lease signed an enterprise bargaining agreement that was in clear breach of the Victorian rules, rendering it ineligible to tender for Victorian government projects while the Lend Lease enterprise bargaining agreement applied.

But then a strange event took place. The building unions found a way to go to the courts to overturn the ban imposed on Lend Lease on the basis that the ban was in breach of the no discrimination provisions of the Fair Work Act. The union was acting to protect the company – an illustration of how both unions and companies benefit from the current arrangements. The unions won the case but there is an appeal by the Victorian government to the full Federal Court which is likely to be heard by the end of the year. 

And now it gets messy – very messy.

The Victorian project group which set up the East West Link tender inserted provisions requiring compliance with the Victorian guidelines and rules. But the crucial elements of those guidelines are suspended pending the outcome of the coming appeal, so the guidelines can’t operate as envisaged.

As a result, Lend Lease and Leighton Holdings can comply with the guidelines as they now stand, and therefore tendered in separate consortiums. Amazingly, Lend Lease was among the three consortiums shortlisted. Just how the Victorian premier and treasurer could allow the company to be in a shortlisted consortium when it was suspended is controversial, to say the least. The Victorian government’s problem is that its hands were tied by the Federal Court decision, and if Lend Lease were excluded the government would likely be in breach of the court’s determination.

But if the guidelines are restored in full, the tendering companies will find themselves potentially required to act as the Victorian government wants them to act (i.e. no cartel-style agreements with unions), rather than the current situation caused by the court decision. Meanwhile, a court decision that upholds the appeal may come too late because the tender will be decided.

The clear aim of the Victorian government is to prevent cartel-style agreements. And this situation is known to all tenderers. Enter Tony Abbott and the ‘The Six’ – the six non-major party senators who are giving the Coalition control of the Senate (Abbott has won control of the Senate, October 10).

The Commonwealth is enraged that the Victorians could include in the shortlist at least one of the groups which currently clearly operates outside not only the Victorian rules but also the proposed Commonwealth rules. The Commonwealth has said it will not change the original Fair Work Act but it can change the regulations so as to apply a Commonwealth building code in the same terms as the Victorian guidelines. The East West Link is to be partly funded by the Commonwealth so is defined as a Commonwealth project.

As a Commonwealth legislative instrument such a Commonwealth code is exempt from the provisions of the Fair Work Act that were used to nobble the Victorian guidelines. And remember after June 30 the new Senate comes into power and any legal problems in such a regulation will be overcome, because the six new senators will back any legislative changes required to block the use of Fair Work to allow a cartel-style agreement in the East West Link (How six senators will transform AustraliaOctober 10).

Given it’s a timing issue, the Commonwealth could also withdraw its $1.5 billion support for the project unless it is clear it will be run under both the Victorian guidelines and the proposed Commonwealth rules. Indeed, ‘The Six’ will see this as a major test for Tony Abbott.

But Abbott has a good memory. Back in 2003, when he was workplace relations minister, the Commonwealth demanded that its guidelines be used in the MCG rebuilding for the Commonwealth games. The Commonwealth had offered $90 million and Abbott withdrew the money when the Labor Victorian government, at the behest of the unions, refused to agree to using the Commonwealth rules.

The precedent for 2013 is clear – operate the East West Link tender using non-cartel agreements, or lose the Commonwealth money.

The dangers to Australia of the East West Link project being constructed under the cartel rules are immense. If the East West Link proceeds under a cartel-style agreement then the great fear is that it will be another Victorian desalination plant with the unions pushing for big claims because the labour content in the East West Link contract is not high, so ‘giving in’ to high demands does not greatly boost the cost of the project. But any concessions made at East West will spread through the country, as occurred with the desalination plant.

If Tony Abbott is to lead an infrastructure revival he must not fall at the first hurdle. The six new senators will be watching.

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