Dodging mining sector mothballs

If the other major states follow Victoria and set up a code of compliance for large building projects, they might avoid many mining industry construction projects being mothballed.

Productivity Spectator

Can we save the multitude of giant mining projects now destined to be mothballed, perhaps for a decade or two? (A mining boom cut-off is coming, May 21).

I believe we have taken a first, albeit small step to lift construction productivity and improve the outlook for Australian mining projects.

Strangely it is managers and executives led by some of those at Leighton (even more than the radical unions), who have the most to fear from that first step. And ironically it is Victorian Premier Ted Baillieu who is leading the nation in taking action to stop the damage to construction industry productivity created by the precedents set in the Victorian desalination plant which boosted mining construction costs.

I explained yesterday that many non-LNG mining projects will not go ahead because the combination of bad practices that Australia’s largest builder Leighton signed up to in the Victorian desalination plant; the so called 'Fair Work Act’; the disembowelling of the Australian Building and Construction Commission; the carbon tax and the shortage of materials and labour which has boosted the cost of new mining projects by between 100 and 300 per cent.

Given the weakness in mineral prices and the shortage of capital (A European-Chinese resources disaster, May 21), those cost rises are just too steep for most projects. I might add that many of those forces are set to send the cost of building Australian infrastructure including hospitals, schools roads etc, through the roof.

The first step to improve non-housing construction productivity must be to stop desalination plant cancer from spreading and so boosting construction and mining costs. A second step is removing the carbon tax.

Although Fair Work Australia presents a huge problem if the other two disaster ingredients can be removed it will be a big help. The carbon tax removal will require an election.

Baillieu, horrified at the threatened cost blow outs that the desalination precedents might create to Victorian construction projects, decided to take an initiative with likely national implications.

He has set up a code of compliance for large builders.(Baillieu's slug to IR radicalism, October 11).

If the builders break that code of compliance in either future government work or work in the Victorian private sector they will not get contracts. If they gain tenders and then break their undertakings they will be effectively run out of the state.

The code of compliance stops unions and managers from preventing small enterprises from tendering, stops unfettered union access to sites, and most of the other crazy provisions that created desalination cancer and sent costs through the roof causing Leighton to lose heavily.

At first glance the code of conduct seems to be directed at unions but actually the people who have most to fear are middle management who gain their employment because they are able to operate in that environment.

At Leighton their Thiess operation gained huge profits for many years from operating in such an environment provided that the customer paid the costs. By contrast managers at the Leighton subsidiary John Holland operated in a way that complied with the new Victorian code but an ALP government decision caused them to lose the desalination tender (even though they were lower) to their rival, Leighton subsidiary Thiess.

It's one thing to establish a code of conduct providing these measures and another to make the code work. The Victorian government is likely to make the code of conduct work because they have selected one of the toughest and best operators in the building business to run the compliance code – Nigel Hadgkiss.

Nigel Hadgkiss is a former executive director of the NSW Public Prosecutions Office and spent six years as the deputy commissioner of the Australian Building and Construction Commission – the old Howard building industry watchdog that was very effective.

Other states are now realising that their construction costs are rising rapidly. They are watching closely what is happening in Victoria and some are likely to follow.

If Queensland, NSW and WA follow Victoria we have taken the first step to de-mothballing big slabs of the mining construction industry.