Readying for an IR showdown

A growing number of senior executives in big business are complaining of productivity problems driven by current industrial relations law, but it's the Victorian government that's actually acting to force change.

Workplace relations reform is caught in a quagmire and it’s going nowhere. Prime Minister Gillard says it doesn’t need to go anywhere and productivity improvements can be achieved through other methods. Gillard claims the NBN and the carbon tax will drive productivity.

But the big end of town is ‘blowing the whistle’ in ways we’ve not seen before. Simplot’s CEO has come out stating they cannot achieve the needed productivity from their workforce (Simplot's simmering sabotage, July 17).

The chairman of Woodside and NAB has said union power is excessive under the Fair Work Act. His point is that this kills off the necessary management initiative needed for continuous improvement. Such comments seem to be echoed by the head of Wesfarmers whose Coles division is currently under industrial relations attack in its warehousing division in Victoria.

Ford, who’ve announced the retrenchment of 440 manufacturing workers because of declining car sales, are mute on workplace performance issues. But Toyota has been upfront that manufacturing productivity is just not good enough. Such frankness is unusual in the car manufacturing sector.

What’s occurring is that big business is flashing huge warning signals smack in the face of the Federal Labor government. Some in the government are listening. Resources Minister Martin Ferguson has publicly recognised that the resources boom is being constrained. A significant reason is a blow-out in construction costs. Huge labour costs (read low productivity) are a major factor.

Federal Labor is caught in a trap of its own history and making. Institutionally the ALP is dependent on union strength. Yet union membership in the private sector has dropped to below 14 per cent of the workforce. However this membership base is almost exclusively concentrated in the 15 per cent of the workforce working in big business. The unions and the ALP are systemically dependent on the existence and viability of big business.

Normally this big business dependency by the ALP/unions creates deal-making settlements on workplace relations issues. But the Fair Work Act has collapsed the settlement processes. By design the FWA has delivered a process of managerial control to union operatives ‘on the ground.’

The outcome is that big business is no longer able to wander into the offices of senior Labor government ministers and have their workplace problems ‘fixed’ at that level. Labor ministers no longer have the ‘grunt’ to deliver on such ‘wink and nudge’ agreements. The operational technicalities of the FWA block them.

This is where the activities of the Victorian government become so interesting. The key to understanding industrial relations is that it’s an anti-competitive set up. Control of labour is monopolised to unions through industrial relations law. The head of the Productivity Commission realises this and has called for industrial relations processes to be subject to competition review.

The Victorian government has seen the worst outcomes in the construction industry. The aggressive monopolisation of construction labour by the Victorian construction unions, now supported by the FWA has escalated construction costs. The Victorian government is presumably seeing this in their infrastructure budgets. They have taken action.

In April this year the Victorian government released a construction code to apply to all construction tenders. Construction companies must comply on all private sector work as well as government work if they wish to tender. The Code Guidelines are a little difficult in spots to interpret for people not familiar with the way industrial relations agreements reduce competition.

However now the Victorian government has released a guide for construction managers. The new document is easy to understand. In plain speak it says what management practices are acceptable and those that are not. It seeks verifiable data.

For example the Management Plan states, "Tenderers should provide actual labour productivity data, including labour efficiencies and output per labour hour or similar objective verifiable and precise data.” In other words the government wants hard figures on labour construction performance when it assesses tenders. The government wants to know who will deliver on time and on budget. No ifs! No industrial relations excuses!
It is a no nonsense business approach by the Victorian government that cuts through what is normally a haze of legal complexity and moralistic table thumping on industrial relations matters. It’s refreshing. It’s an approach that CEOs and CFOs will understand without having to defer to lawyers. This makes it powerful.

Industrial relations laws and processes, most frequently disempower the top executives in large businesses. It’s achieved by ensuring that industrial relations specialists call the shots, based on legal technicalities and the removal of a commercial outcome focus.

The Victorian government is demonstrating that its entire focus is the cost effective commercial delivery on its construction jobs. The result won’t be known until new construction work is completed under this tender regime. But one thing is certain. No construction executive will be unclear about the performance benchmarks being set by the Victorian Baillieu government.

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


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