What Lend Lease and Leighton shareholders need to know

Following the Victorian government's plan to ban Lend Lease as a contractor, Leighton is also in the gun. And both must own up to investors about the seriousness of the situation.

The directors of Lend Lease urgently need to inform the stock market that, as a result of the Lend Lease enterprise bargain with the unions, Lend Lease is set to be banned as a contractor by the Victorian government. Unless the union backs down, or Lend Lease develops a new management strategy, it will effectively be a lifetime ban.

Although the ban looks like it could lead to a long and drawn out legal dispute in Victoria (Victoria's Lend Lease ban could face court challenge, December 19), there is every prospect that New South Wales and perhaps Queensland will ban the company too.

Shareholders in Leighton also need to brace themselves for bad news because they face they same ban later in 2013.

Indeed, I suspect that the six month period of grace that Lend Lease subsidiaries Abigroup and Baulderstone have been given may be a result of the bad relations with Leighton over the desalination fiasco.

In the desalination deal, Leighton signed a fixed priced contract with the Victorian government on the back of a union agreement from hell and Leighton is now suing the Victorian government to recoup the extra costs caused by industrial disputes.

What is really strange is that management at both Lend Lease and Leighton are not coming to grips with the seriousness of what potentially faces them given that 40 per cent of commercial contracting in Australia is via state governments.

Lend Lease management decisions have been provocative, to say the least. Firstly, it signed the agreement with building unions when that agreement was in clear breach of Victorian guidelines.

Secondly, only this month they appointed two executives who played a role in the disastrous desalination contract while at Leighton. I am not questioning the talents of these executives but the desalination fiasco was one reason Victorian Premier Ted Baillieu took a stand (Lend Lease strikes out on an unholy union, December 18).

On the Leighton side, there also seems to be a lack of understanding of the dangers. I suspect that one of the reasons Lend Lease subsidiaries Abigroup and Baulderstone were given a six-month period of grace was that the only other tenderer for the Bendigo Hospital was Leighton. In future, Victoria will break up contracts so smaller builders can tender.

Leighton shareholders should be aware that not only is their company next in line to be banned (its main labour agreement ends on August 2013), but it is also taking risks in the market place.

Leighton is building a $450 million 55,000 square metre premium-grade office building at 567 Collins Street, Melbourne, near Southern Cross railway station.

Leighton will be one of the anchor tenants but has also taken a punt it can fill the non-leased space. If Leighton is also banned next year, then it will not have a great need for the office space it has rented.

Leighton and Lend Lease have their fingers crossed that Ted Baillieu will be thrown out of office in two years.