The making or breaking of Mr Infrastructure

If vested construction interests succeed in smashing Victoria's anti-cartel laws they'll be able to boost construction costs and absorb the money Tony Abbott has earmarked for infrastructure.

Tony Abbott’s pre-election promise to be ‘Mr Infrastructure’ is now in danger of being neutralised. A distracted prime minister is being outmanoeuvred by the lethal combination of big unions, big corporations and a state government in election mode.

And Abbott’s eastern states inaction might even affect Gina Rinehart’s planned Roy Hill iron ore mine in Western Australia, which is currently in negotiation with bankers, and end the slim hopes of new LNG projects. (Rinehart’s people have signed Gorgon-style labour agreements, which look vulnerable to developments in other parts of the country.)

Last week I was at a large business lunch and found myself sitting with a small tenderer for the Melbourne’s East West Link tunnel project. Traditionally commercial tenders along the Australian east coast are set by the same rules – the small sub contractors have to be approved by the unions so they are very careful to obey union instructions on site. Normally the small sub contractors get the word on what will be required in the way of wage increases. It is this process that stops new tenderers and boosts the cost of Australian commercial building. But for small tenderers it is ‘comply or go out of business’.

The small tenderer was shocked at the East West Link message coming down from the unions – budget for a 30-40 per cent wage rise. It’s no problem to the ‘small fry’ tenderers because they all obey the ‘rules’ and add their margin. But the consequent increase in costs will spread around the nation, neutralising all the extra money Tony Abbott is planning for infrastructure.

And the blame for what is about to happen can be sheeted home to inexperience in Canberra and a Victorian government anxious to be re-elected.

Under former Premier Ted Baillieu, Victoria led Australia in imposing legislation that blocked the cartel-style agreements in government projects between big builders and big unions that gave the unions control over who could be sub contractors and enormous power on site. Similar legislation was then introduced in Queensland and New South Wales and Tony Abbott promised to do the same thing in Canberra. Both the unions and the big builders are beneficiaries from these sorts of agreements and the lobbying to prevent government action is intense.

In Victoria last year, Lend Lease ignored the guidelines and signed an enterprise bargaining agreement that was in clear breach of the Victorian rules, rendering it ineligible to tender for Victorian government projects while that Lend Lease enterprise bargaining agreement applied.

But in the Federal Court the building unions were able overturn the ban imposed on Lend Lease on the basis that the ban was in breach of the ‘no discrimination’ provisions of the Fair Work Act.

So in Victoria it’s back to the old cartel-style agreement rules until the appeal to the full Federal Court is decided.

The Victorian project group, which set up the East West Link tender, inserted provisions requiring compliance with the Victorian guidelines and rules. But the crucial elements of those guidelines are now suspended pending the outcome of the coming full Federal Court appeal.

As a result of that rule suspension, both Leighton and Lend Lease could be involved in tenders and could comply with (emasculated) guidelines.

The unions will not miss this last chance to nail unheard of wage rates, which will be funded by Abbott money.

There are only two ways to stop this happening. If the court appeal is heard and a favourable decision handed down in February then the full Victorian anti-cartel provisions could apply to the East West tender. But if that happened only one of the three short-listed consortiums might then be eligible to tender. But the unions will try to delay the court appeal decision-making. If a decision is not reached before April, the tender process may be too far down the track so cartel-style rules will apply. Similarly Abbott's proposed Australian Building and Construction Commission will block the cartel-style agreements but the legislation can’t be passed until after the new Senate sits next July. By then it will be too late for East West Link.

What is required is a change to the Commonwealth regulations so as to apply a Commonwealth building code in the same terms as the Victorian guidelines that operated prior to the court decision.

As a Commonwealth legislative instrument, such a Commonwealth code is exempt from the provisions of the Fair Work Act that were used to nobble the Victorian guidelines.

The East West Link is to be partly funded by the Commonwealth so is defined as a Commonwealth project.

And to underline his determination to get value for Commonwealth money Tony Abbott needs to stop any Commonwealth money going to a project that operates on the old cartel-style agreement rules because of the danger that presents to the rest of the country.

But Victoria’s Napthine government plans to use East West Link as a corner stone in its 2014 election campaign. Indeed many elements in the Victorian government would prefer to roll over on this one, particularly as the labour content in a tunnel is much less than normal infrastructure.

Australia will pay a high price for that Victorian re-election strategy.  

Note: I first raised this issue last month in the article Abbott’s East West infrastructure test (October 10). 

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