How a construction giant dug itself into a hole

The giant South African global construction group Aveng has taken a rare global decision – it has taken on the elected Australian government as well as the Victorian state government.

The decision will send shockwaves through the international contracting community, particularly as Aveng has a new chief executive, Kobus Verster, and this represents one of his most significant decisions.

In Australia, Aveng operates through the contracting company McConnell Dowell, which is headed by David Robinson, and who is also on the Aveng board. Its turnover in Australia exceeds $3.5 billion.

Robinson and Verster decided to take on the Victorian government by engaging a labour hire company with a CFMEU construction union agreement. (Victoria's building union crackdown reaches the next level; September 18.)

Given the widespread publicity in Australia and abroad, Verster and Robinson must have been fully aware that appointing such a company meant that Aveng/McConnell Dowell was signalling that it remained part of the cartel-style agreements, whereby the unions approve who can be sub-contractors and how they conduct their business on-site. These agreements boost the cost of commercial contraction in Australia by 15 to 30 per cent.

The consequent three-month ban being imposed by the Victorian government on McConnell Dowell means that Aveng will not participate in the current round of rail construction contracts being put forward.

Aveng/McConnell Dowell were hot favourites to win a whole string of Victorian rail contracts because their main opponent, John Holland, is being sold by Leighton, so no-one is sure who will own them. The contracts are worth more than $1 billion and Aveng/McConnell Dowell will be not be able to register as an interested tenderer in one contract, and will not gain the information required to tender in a series of others.

Another international company is racing to replace Aveng/McConnell Dowell in Victoria and Australia.

Of course, Verster and Robinson may be punting that the ALP will replace the Victorian Liberal government in November given that the ALP is ahead in the opinion polls. The ALP has vowed to allow the cartel agreements to return, and is prepared to pay the extra cost.

Governments in Victoria, NSW and Queensland have banned the cartel-style agreements that allow unions to control who can be sub-contractors and give them virtual control of building sites, and the Commonwealth has stated that no state government will get federal government assistance on any project where cartel-style agreements with the unions are used. However, the Abbott Government is having difficulty with the legislation in the senate.

The federal government was not involved in the Victorian rail contracts, but Aveng/ McConnell Dowell are now on a clear watch list and will be viewed suspiciously by NSW and Queensland state governments as well as the Commonwealth.

When, two years ago, Lend Lease management decided to deliberately ignore the Victorian government rules its chairman David Crawford stepped in and Lend Lease management has now moved outside the cartels. The chairman of Aveng is Angus Band, and if Aveng/McConnell Dowell wants to be a major player in Australia then Band has to do what Crawford did at Lend Lease and bring Verster and Robinson into line. Some managers blame the unions, but as Lend Lease and Grocon have showed it’s really about management.

Then, of course, the South Africans may take the view that the ALP is set to regain power in Victoria and Australia, so who cares. But governments in other international jurisdictions will take note of the Verster and Robinson strategy.