Leighton feels a Fair Work pinch

The cost of Australia's big infrastructure projects, including hospitals, schools, power generation, ports and mines, has been boosted by the unintended consequences of the Fair Work Act, according to Leighton chief executive Hamish Tyrwhitt.

As a result, I walked away from the KGB Interview with Hamish Tyrwhitt excited about the sheer weight of work ahead for our largest construction group. But I was sad to discover that as a result of the Fair Work Act our construction productivity is slipping. And the Australian community will bear the consequences because Hamish Tyrwhitt declares that Leighton is simply going to pass on the higher costs created by government.

This is a Gillard legacy that is not going to be easy to fix.

Strangely enough, Tyrwhitt is not complaining about a wages push, unions or strikes but rather how, when translated to the workplace, the Fair Work Act has crazy outcomes that frustrate both workers and managers.

The Leighton chief executive explains that if you're on, say, a four day on, four day off roster and you are an electrician wiring up some complicated lighting or acoustic system in a room then after six hours into the job, all of a sudden the shift ends. The next day someone else comes in and they have to undo everything that's been done and start again.

"There needs to be flexibility to enable people to use their skills to carry out a task. By limiting the work and the rosters, some of the things that are coming in are really making it very challenging for productivity in the industry,” Tyrwhitt says.

"People are craftsmen and tradesmen – they don't want to leave halfway through something," he says.

I asked him: "Can't you as managers negotiate deals that overcome that?"

"The problem is that there's no one deal for one issue," Tyrwhitt replied. "In a factory that's got production work, rosters are fantastic. It works very well, but it depends on the trade and the environment.

"I guess the main point for me is that there's no one solution for this productivity issue. We want Australia to be sustainable, but we can't let these great profits in other areas that are being made mask the systemic problem with productivity. It's not about what we pay people; it's about the output we get from people.”

Yet the other side is that Leighton has $46 billion worth of work on the books with a theoretical gross profit of $4.6 billion (10 per cent). Leighton has been asked to tender for another $30 billion and in those tenders all the new 'Fair Work costs' will be passed on.

Tyrwhitt believes that with the Victorian desalination plant almost complete the major losses have been accounted for. However, like all contracts of this sort, when the plant is turned on it must work as designed. In the interview, he explains what went wrong and how he will change Leighton to lessen the risk of similar problems.