Construction sweetheart deals face the wrecking ball

A dramatic Federal Court decision yesterday means the net is closing in the way big builders like Lend Lease and Leighton undertake large contracts in Australia. As a result, the costs of Australian government infrastructure could fall between 15 and 30 per cent over time.

On its last sitting day in 2013, the full Federal Court yesterday afternoon not only put Australian infrastructure cost reduction back on track, but may have prevented a further major blowout in Australian infrastructure building costs.

Lend Lease, Leighton and most major builders (except Grocon) have agreements with the big building unions that give the unions enormous power on sites and enable the unions to approve who can be subcontractors. These agreements have ravaged productivity in large Australian building contracts, including mining infrastructure.

Victoria, followed by Queensland and New South Wales, last year outlawed these agreements by setting up a code of conduct in state government contracts.

A key platform of the Abbott government is to revitalise the old Australian Building and Construction and Commission, and Tony Abbott has appointed Nigel Hadgkiss and John Lloyd to head it up. No one understands the damage the Lend Lease/Leighton cartel-style agreements have done to Australian commercial building productivity better than Hadgkiss and Lloyd.

Along with the carbon tax laws, legislation giving the Australian Building and Construction teeth is likely to be passed by the new Senate after July 1.

Last year, Lend Lease snubbed the Victorian government and entered into an enterprise bargaining agreement that was in clear breach of the Victorian rules. That Lend Lease enterprise bargaining agreement rendered Lend Lease ineligible to tender for Victorian government projects, at least while the enterprise bargaining agreement exists.

But the Victorian government’s Lend Lease ‘ban’ hit a snag. The building unions found a way convince a single judge in the Federal Court 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.

Yesterday the full Federal Court overturned that single judge decision.

The speed with which the full court made that decision may have reflected the fact that timing was crucial to the future of commercial building (including mining infrastructure) costs in Australia.

While the original Federal Court decision upholding the union case was in place, there were effectively no Victorian rules outlawing Lend Lease-style workplace agreements on government projects.

This was a crucial time, because one of Australia’s largest infrastructure projects – the East West Link in Melbourne – was going to tender. The Victorian project group inserted provisions requiring compliance with the Victorian guidelines and rules, but those rules and guidelines had been neutralised.

As a result, Lend Lease and Leighton Holdings could comply with the guidelines as they stood prior to yesterday, and therefore tendered in separate consortiums.

Amazingly, Lend Lease was among the three consortiums shortlisted. Leighton was in another shortlisted consortium. The third shortlisted group included Samsung from South Korea. Remember that if Lend Lease and/or Leighton sign union agreements that comply with the rules, their tenders can proceed.

If the Federal Court decision had been delayed until February/ March, the tendering process would have been too far down the line to implement the Victorian guidelines and the Abbott legislation must wait until after July 1 – again, much too late.

Now with the Federal Court decision, the Victorian guidelines are restored in full. The tendering companies will find themselves required to act as the Victorian government wants them to act (no cartel-style agreements with unions), rather than the situation caused by the court.

And the Abbott government will now almost certainly make federal government money conditional on the Victorian guidelines being implemented. The Victorian project group will be told: “Undertake the East-West link contract properly or don’t do it at all”.

Meanwhile, under the old Federal Court decision, the unions were planning to use the East West Link (where the first stage is not labour-intensive) to set dramatically increased benchmarks in wage rates and union power. That would have spread around Australia. They have been thwarted.

I have written regularly on this subject. Here are two links: Lend Lease and Leighton will be quaking, October 18; Abbott’s East West infrastructure test, October 10.