Lend Lease strikes out on an unholy union

The Australian building and construction giant Lend Lease is set to be banned from tendering for future Victorian government construction projects. Lend Lease is being punished because its management foolishly signed an agreement with the building unions which clearly breached the Victorian guidelines and then tried to claim that it was within the rules.

The Victorian building guidelines are designed to stop unions controlling who can be subcontractors and/or controlling building sites. The code will slash Victorian infrastructure (hospitals, roads, rail, schools etc), building costs by 20 to 25 per cent. And New South Wales now realises that it is also paying 20 to 25 per cent more for infrastructure as a result of the building industry's union sweetheart deals, so it's promising to follow Victoria with a similar code.

Potentially, Lend Lease could, in time, also be banned from New South Wales government contracts. And if, as is likely, Queensland follows Victoria and NSW, Lend Lease will be outed on the eastern seaboard. State governments account for 40 per cent of commercial building contracts. Construction contributes about half of Lend Lease's Australian profits, but the group has a huge backlog of work so it will take a long while before any bans send it out of the construction business. Leighton in time will face a similar problem. The political pressure will be intense on the New South Wales and Queensland governments to not follow Victoria but rather ‘cop it sweet' by paying the higher costs. The industry will claim that without union deals the major builders simply can't do the work. Alternatively the builders may also claim that despite what the agreements say, they control their sites and who can be subcontractors.

However, the Victorian government has given Lend Lease the chance to reverse the management mistakes that led to its ban and become eligible once again to tender.

Lend Lease has two subsidiaries – Baulderstone and Abigroup – which have not signed enterprise agreements since July 1, but would have been caught under the ambit of the Lend Lease ban. They have been given six months grace and Baulderstone and Abigroup (but not Lend Lease) can tender during those six months. After that Baulderstone and Abigroup will also be banned if Lend Lease does not comply .

How did Lend Lease management get itself into this mess? The commercial building industry has been very profitable (except when tendering mistakes are made) because there has been a deal between the unions and the builders, which effectively means that the unions control who can be subcontractors and who can work on the sites. The Howard government introduced a code which made such cartels via enterprise bargains illegal. The builders under the Howard code began regaining control of the building sites and more people could tender for subcontracts, so productivity began to soar. Then Julia Gillard ended the Howard code and with glee the builders went back to their profitable old ways where the clients pay higher prices.

But remarkably Victorian Premier Ted Baillieu was not prepared to spend unnecessary taxpayer dollars this way, so on July 1 2012 he introduced a set of guidelines for Victorian government contracts. (And those guidelines had an extra twist – any builder with a contract in the private sector that did not comply with the guidelines is also outed).

It was high risk because among the major builders only Grocon was able to comply with the Victorian rules and the unions are conducting a campaign to send Grocon to the wall.

That's why the unions were publicly jubilant when Lend Lease management signed an agreement to maintain the cartel, making Lend Lease in breach of the Victorian rules (Who'll join Ballieu's construction revolution? October 15).

Then Lend Lease made the situation worse by putting out a press release claiming that the agreement complied with the "code”. While that was true, the teeth were in the "guidelines”, which Lend Lease did not comply with. Lend Lease was playing silly games which compounded its error (The changing state of Victorian construction, October 18).

After the bad press release, Lend Lease chief executive officer for Australia, Mark Menhinnitt phoned me to declare that Lend Lease wanted to operate in Victoria and was a major investor in the state. He said he would have discussions with the Victorian government about the latest enterprise agreement which he believed was in line with the guidelines. He emphasised that Lend Lease has a policy of retaining control of its work sites and has fought unions in extended recent strikes in Queensland to win on this issue.

Clearly those discussions failed and Lend Lease must deal with the consequences.

Another reference is:Lend Lease skirts Victorian building foundations, October 17.