Another builder steps into line

Australia yesterday took another vital step in the drive to reduce the costs of building our infrastructure by between 15 and 30 per cent.

And that step showed the power of state governments to drive those cost reductions and get far more value for taxpayer dollars. But it also showed that if the ALP’s Daniel Andrews wins the coming Victorian state election it will be much harder to reduce the costs.

The giant South African construction company Aveng, which operates in Australia through McConnell Dowell, had previously decided to take on the Victorian and Australian governments in their code of conduct by engaging a labour hire company with a CFMEU construction union agreement. (See How a construction giant dug itself into a hole, September 26).

The Victorian government responded by suspending Aveng/ McConnell Dowell from tendering or registering for an interest in Victorian government-funded projects for three months.

Now, after a gap of over two weeks, the South African giant has issued a statement vowing that it is committed to the code of practice for the building and construction industry. McConnell Dowell claims the suspension arose over what was an isolated incident and is “not reflective of McConnell Dowell’s business practices”. I have set out the full McConnell Dowell statement below. While neither Aveng South African chief Kobus Verster nor Australian CEO David Robinson signed the document, they authorised the statement.

The problem Verster and Robinson face is the same as that faced by the CEOs of all major construction companies including Lend Lease, Leighton, and Multiplex -- most of their executives have worked all their careers on the basis that unions have the right to approve subcontractors and approve hiring, and that governments will pay the higher costs involved.

The Royal Commissions have revealed how deep the relationship is between the builders and unions. Organised crime links and union slush funds abound, so the executives have been treading a dangerous path, and as a result the CEOs and boards of our large building contractors are also endangered.

Lend Lease won Victoria’s giant East West Link construction contract, partly because it had previously installed a major executive retraining program to enable Lend Lease executives to take control and reduce the costs by lifting productivity.

In their statement, Verster and Robinson have undertaken to implement a McConnell Dowell training program across all Australian sites to “ensure compliance”. With the benefit of hindsight that’s what they should have done two years ago, although in fairness Verster only became Aveng CEO this year.

The good news for Australia is that another major builder is going to reduce its costs by abandoning the old cartels with the unions.

The current state of play is that Victoria, NSW and Queensland have introduced codes of practice in their contracts, which ban large builders from entering into cartels with unions to jack up the prices by eliminating subcontractor tendering competition. Victoria is the most advanced in implementing the program, and has already benefitted by being able to enlarge the Box Hill hospital via the cost savings.

The Commonwealth is looking to pass legislation that will lock in the lower-cost regime, but there is no certainty it will pass the senate. The Abbott government has agreed not to give states money for projects where the anti-cartel code is not used. They want value for Australian taxpayers.

Victorian Opposition leader Daniel Andrews has close links with the building unions and they are major financial supporters of the ALP. He has vowed to tear up the code of practice, even though it may mean no Commonwealth money for Victorian infrastructure. He will try and call the federal government’s bluff.

Given it is a political issue, this makes it very hard for CEOs to change the culture of their management.