Queensland hammers down on construction unions

Queensland has followed Victoria's move to ban cartel-style building arrangements, and it is sure to boost its coal exports. It also provides hope Western Australia will follow.

Amid the fears of a banking crisis out of Cyprus and the chaos in Canberra I bring you good news – Queensland is clearly taking the first steps to regain global competitiveness in new coal export projects.

It now seems certain that Queensland Premier Campbell Newman will follow Victoria and ban the cartel-style agreement between big builders and the building unions on government projects. The builder-union agreements add 20-25 per cent to the cost of infrastructure and mining projects. There is a good chance that now the state election is out of the way Western Australia will follow Victoria and Queensland.

The Queensland action is the first step towards making the Galilee Basin coal deposits economic. Under the current construction rules and operating procedures a coal price per tonne of $120 is required (the current price is around $92). To be considered, the Galilee project needs to be economic at around $70 a tonne (BREAKFAST DEALS: Coal crunch, March 12).

Under the Queensland and Victorian rules, builders like Lend Lease and Leighton cannot get government work if they operate a cartel-style deal with the unions in any new private contracts. They will effectively be banned from operating in these states in new work unless they change their management practices and union agreements. They face the horrendous management problem of completing contracts signed under the current union agreements when new projects that must be managed in an entirely different way with different union agreements. Lend Lease has already been banned from Victoria becase it signed an agreement with the unions in blatant breach of Victorian rules. Victoria is now set for a big fall in the cost of hospitals, schools, roads etc. over the next few years.

It’s true that former Victorian Premier Ted Baillieu masterminded the anti-cartel legislation and he has been rolled. But the new Premier Dennis Napthine shows no signs of buckling to the unions and big builders.  

However to my great surprise New South Wales Premier Barry O’Farrell buckled to pressure from the big builders and while his draft plan looks like a copy of the Victorian and Queensland anti-cartel legislation it is full of holes and is useless (Leighton builds a union bypass, February 14).

New South Wales taxpayers will have to 'cop it sweet' and forget mining projects and pay more for hospitals, roads etc. I am still hopeful that my original conclusions about the strength of O’Farrell were right – that when the final legislation is drafted New South Wales will block the costs imposed by the union big builder big union agreements on taxpayers.

In the federal sphere Bill Shorten is trying to look after friends in the union movement (and possibly the large builders) and is trying to block Victorian anti-cartel legislation in the courts. Tony Abbott promises to block the big-builder-building union agreements but we fear he may buckle and follow the New South Wales path.

During the week I was approached in Sydney by a middle ranking executive of one of the large builders telling me that I had it all wrong and that ‘removing union flags from building sites’ will not cut costs. I am sure this is what O’Farrell was told and that most executives in the big builders are simply unaware of the damage the cartel-style agreement does to commercial building costs. The builders make big profits because they can pass on the costs and it is very hard for new builders to enter the commercial building industry (What Lend Lease and Leighton shareholders need to know, December 19). 

I explained to the well-meaning and honest executive that two main elements of the agreements cause the problem – the flag is merely a symptom.  

First, effectively the union approves all commercial building sub contractors and to get that approval sub contractors must operate to high cost union rules.  And second, there are always union people on the site to enforce these rules and make sure sub contractors toe the line.

There is no chance for the productivity and innovation that comes with a free competitive tender process among subcontractors. In the home building sector, where the cartel stake agreements do not operate, costs have been slashed by sub contractor innovation. It's true that the planning rules also add a large amount to costs and they need to be streamlined.

In the case of mineral projects the required cost reductions are greater than will be delivered simply by the abolition of the cartel-style agreements. But already the actions by the Queensland government have people looking at what can be done, within the existing acts, to further cut costs and the news is good. Well done Campbell Newman.

Meanwhile both Lend Lease and Leighton will have to develop entirely new management techniques to operate long term in Queensland and Victoria and I suspect Western Australia. And I still have my fingers crossed that my original faith in Barry O’Farrell was not misplaced.

InvestSMART FORUM: Come and meet the team

We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles