NSW link risks a desal-style disaster

If the O'Farrell government isn't careful its flagship infrastructure project may quickly end up facing spiralling labour costs, a la Victoria's desal plant.

The New South Wales government is walking into dangerous territory that will test their capacity as a government. Last week the O’Farrell government announced they had received strong interest from major construction firms for the building of the $8.5 billion budgeted North West Rail Link for Sydney.
But if things go badly the construction project could blow up in the O’Farrell government's face. The circumstances are set for just this to happen. The scenarios afflicting the disastrous Victorian desalination plant are real and in play for Sydney’s North West Rail Link project.

The Rail Link is the major public infrastructure project planned by the O’Farrell government. It fills a hole in the Sydney rail network intended to feed commuters from North Sydney into the rail transport grid. Connecting Chatswood to Cudgegong Road, the 23km project consists of 15.5km of tunnel, the longest and deepest tunnel ever built in Australia.

The planning, engineering and technical challenges are formidable but no more than for any other major infrastructure project. There are heaps of competent Australian and international construction firms capable of doing the job. But walking into the mix is the NSW union oligarchy determined to rip-off NSW as they have done for decades.

Already NSW unions have been corralling potential tenders for the job, laying out the industrial agreements to be imposed on the job. The unions’ intent is to eliminate workforce management of the job as an issue of competitive difference between tenderers. In so doing the project will effectively be controlled by NSW unions, not the winning construction firm or the client, the O’Farrell government.

I often find a naivety in Sydney circles relating to NSW unions. They look at Victoria as some sort of industrial relations horror but that the problems don’t cross the border to any large degree.

Yes, Victorian unions are different. The Victorian construction unions in particular tend to be madder and certainly more violent than in NSW. But NSW unions are more sophisticated. Their strategic brilliance is that they have ingrained themselves deeply into the government and business institutions of NSW. They are 'the Establishment'.

Politically, there’s is no difference between the NSW unions and the NSW Australian Labor Party. They are an integrated unit. While this union/ALP unit governed NSW the unions gave the appearance of delivering on construction projects. The payoff for this political/union settlement was control of projects in the hands of unions with associated cost overruns hidden in official budgets.

However it worked, NSW has for decades being building infrastructure at costs way beyond what efficient construction projects should cost. The election of the O’Farrell government has broken the unions’ control of the formal arms of government. But it has not yet changed the way unions control business, particularly construction business, in NSW.

This is where the North West Rail Link is such a test for the O’Farrell government. Since gaining office the government has been largely plugging away at sorting and reforming the finances and administration of the NSW government. Big infrastructure developments have pretty much been on hold. But the Rail Link is the biggest of the biggest and it’s set to go.

Much hinges on the success of the project, including the future reputation of the O’Farrell government. If the project suffers from huge cost overruns and delays, blame will be directed at the government. To avoid this the government needs to firmly control the project to ensure delivery within budget and on time. The nature of the industrial agreements controlling the project is critical to this outcome.

If NSW unions have their way, it won’t matter which construction firm wins the tender. Workforce management will rest with the unions. This is where the Victorian desalination plant scenario looms large.

On around a $5 billion desalination build, Leighton Construction is suffering losses approaching $1 billion. Leighton subsidiary Thiess won the tender, heavily on the back of agreeing to industrial arrangements put in place through the Victorian Trades Hall Council. That agreement primarily determined that Thiess couldn’t manage its workforce resulting in workforce inefficiencies that have substantially contributed to the losses.

Now consider the Sydney Rail Link. NSW unions have everything to gain by turning the Rail Link into a Victorian desal style disaster. They’ll push for huge pay allowances and bonuses that’ll put the onsite workers (their members) into ‘fat cat’ territory. That’s the situation in Victoria. They’ll have agreement clauses that’ll constrict the ability of the winning construction company from effectively managing the work. Delay will almost be inevitable and probably locked in.

In Victoria the one smart thing the Brumby Labor government did was to make the desal plant a fixed price job. Leighton have suffered the losses, not the government. However, any company accepting the Sydney Rail Link project at a fixed price would be taking on huge risk they could not control. NSW union politics will play against the project. It’s more likely that contracts will transfer cost overruns onto the O’Farrell government.

Here’s the risk to NSW. NSW unions will control the Sydney Rail Link construction. The project will run over budget. Try adding at least 25 per cent to the budget of $8.5 billion. That’s an extra $2 billion. Delay the project by, say, two years. Commuters won’t be happy. Who will wear the blame? The O’Farrell government of course.

Perfect outcome for NSW unions and the NSW ALP.

Ken Phillips is executive director of Independent Contractors Australia and author of Independence and the Death of Employment.

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