States advance against a union fortress

Australia's three eastern states look like breaking out of the Commonwealth morass in an attempt to to reduce their infrastructure construction costs by between 20 and 25 per cent.

If they win, the reduction will spread to the private sector. Big "union friendly” builders like Leighton, Lend Lease and Multiplex will need to watch out.

New South Wales looks set to follow the recently introduced Victorian codes of conduct for state building contracts, which will slash construction costs. Queensland will almost certainly follow. I suspect if the eastern states go the Victorian way, Western Australia will follow after the 2013 election.

In effect, the three eastern states are moving to gain control over commercial construction industrial relations because of the closeness of the federal government to the building unions and the devastating effect Canberra's actions are having on building costs – particularly in the mining industry.

About 40 or cent of all commercial building in Australia is commissioned by the states so, if Queensland and New South Wales join Victoria, any builder not complying with the code requirements of the three eastern states will not last long in the game.

The Victorian code of conduct is aimed squarely at Leighton, Lend Lease and Multiplex, who have agreements with the building unions, which the Baillieu government believes effectively give the building unions control over the building sites. I must emphasise that all three companies would deny this, but if union access to sites is curbed and union approval of sub contractors is removed (so allowing free tendering) then it will require a change in the way Leighton, Lend Lease and Multiplex do business (Who'll join Ballieu's construction revolution, October 15; Lend Lease skirts Victorian building foundations, October 17; The changing state of Victoria construction, October 18)

New South Wales has announced that it plans to follow Victoria and has put out a discussion paper. Queensland has not made an announcement, but everyone knows that following Victoria is high on the agenda.

In the Howard years there was a code of conduct that regulated rights of union entry to sites, and eliminated union control over who could be sub contractors. Because most big builders were close to unions and could pass on the extra costs, the big builders initially hated the code. But when they realised Howard was serious they began learn how to manage under the code and building productivity soared. Then the Rudd-Gillard governments emasculated the code and returned control of building sites to their friends in the unions. The costs skyrocketed with the mining industry among the hardest hit sectors.

At Leighton much of the expertise in regaining control of building sites was in its Holland division, but most of the key the people have left. Lend Lease recently signed an agreement with the building unions that the Victorian government believes was in breach of the Victorian code, and for once the building unions agreed with the Victorian government. They boasted that Lend Lease had breached the Victorian guidelines, which they want to overthrow because the Lend Lease agreement allows the unions control over sub contracting and site access.

Lend Lease denies it has breached the Victorian guidelines, but the agreement was a was a foolish management mistake because now they are likely to be seen to be in breach in three states.

In effect, until the New South Wales move the big building companies had decided to stare down Victorian Premier Ted Baillieu. But Baillieu, who wants to get a fair deal on government infrastructure costs, has been remarkably resolute and now has top people ready to enforce his code. New South Wales clearly does not want to be the state that was being ripped off by the combination of big builders and big unions so its decided in principle to join the Victorian government. But it is not an easy path. At the moment in Victoria the only major builder who can build to the code is Grocon, and the unions are throwing everything they can at Daniel Grollo to destroy his business so that there will be no one able to build to the code. The unions then believe they will retain control of building sites. Because Grocon can build more cheaply than Lend Lease and Leighton, Grocon have been flooded with work and cannot take on much more.

And so when the Bendigo Hospital contract came up, Grocon did not tender and the main bidders were none other than Lend Lease and Leighton. Because hospital tenders are so complex, the Victorian government may have to roll over, but in future it has realised that it must split complex contracts so that smaller builders, who can comply with the code and build much more cheaply, can tender.

The pressure on New South Wales not to follow Victoria will be immense. If it does not buckle and Queensland goes ahead, the big builders will have no choice but to retake control of its sites. Under the Howard code, productivity was soaring. Under Gillard we are back to at best the 1980s, but probably worse. We face some very angry unions in eastern states who have a taste for the power control over building site management gives them.