New national Building Code issued and given legislative backing

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8 February 2013 | Anthony Forsyth

On 25 January 2013, Workplace Relations Minister Bill Shorten MP issued a new code of practice for the building and construction industry. The Building Code 2013 (Building Code) was made as a legislative instrument, replacing the National Code of Practice for the Construction Industry (which operated as a policy instrument only).

The Building Code and the accompanying Supporting Guidelines for Commonwealth Funding Entities (Supporting Guidelines) took effect on 1 February 2013. These instruments codify previously applicable procurement rules applicable to contractors and participants in the building and construction industry, aimed at ensuring they comply with federal workplace relations laws.

In this In Brief, we explain the significance of the Building Code taking the form of a legislative instrument; the scope of application and content of the Code and Supporting Guidelines; consequences of breaching the Code; and the interaction of the Code with state government building codes (which has recently become quite a significant issue in the Victorian construction industry).

Why has the Building Code been legislated?

Previously, the National Code of Practice for the Construction Industry and successive versions of the Australian Government Implementation Guidelines for the National Code of Practice for the Construction Industry had no independent legal force and were not subject to Parliamentary scrutiny. This gave governments of both political persuasions considerable flexibility to change the guidelines in order to further their policy objectives and deal with changing circumstances.

By issuing the Building Code as a legislative instrument under the Fair Work (Building Industry) Act 2012 (Cth), the Government intends to provide contractors and building industry participants with greater certainty. Because legislative instruments must be registered with and may be disallowed by Parliament, a higher level of accountability is also achieved.  To that extent the legislative instrument status of the Building Code implements, in part, views expressed by Murray Wilcox QC in his Transition to Fair Work Australia for the Building and Construction Industry Report (March 2009).

It seems that another motivation of the Government in legislating the Building Code is to put it on a more sound legal footing, given the emerging conflict between the federal procurement rules and those issued by some state governments (which we discuss further below).

Who does the Building Code apply to?

Building contractors and building industry participants are subject to the Building Code if:

  • they have submitted an expression of interest or tender for Commonwealth-funded building work, including projects undertaken or funded by a federal department or agency and projects indirectly funded by a Commonwealth grant exceeding certain specified monetary amounts, prior to 1 February 2013 (this departs from the previous approach, whereby projects were subject to the version of the National Code Implementation Guidelines applicable when tenders were first called for); or
  • they submit an expression of interest or tender for Commonwealth-funded building work on or after 1 February 2013; or
  • after becoming subject to the Code in either of the above circumstances, they carry out any Commonwealth-funded or privately-funded building work.

The Building Code applies only to on-site building and construction activities, and off-site activities that relate to on-site work (e.g. building work performed on an auxiliary site).

Building contractors and building industry participants covered by the Building Code must ensure that their subcontractors are also code-compliant.

What does the Building Code require?

For the most part, the obligations imposed on contractors and building industry participants by the Building Code reflect those that were previously applicable. These include:

  • General responsibilities: e.g. proactive implementation of measures to ensure compliance with the Building Code (including by subcontractors), and notification of any alleged breaches to the Director of Fair Work Building and Construction (FWBC) within 21 days.
  • Compliance with other laws: these include the FWBI Act, the Fair Work Act 2009 (Cth) (FW Act), modern awards and enterprise agreements made under the FW Act, the Independent Contractors Act 2006 (Cth) (IC Act), and the Competition and Consumer Act 2010 (Cth) to the extent that it relates to tendering or building work. Contractors and building industry participants must also comply with any decision, direction or order made by a court or tribunal that applies to them.
  • Unregistered agreements: generally, contractors and building industry participants must only bargain for or make agreements setting employment conditions under the FW Act (or other designated building laws). Unregistered written individual or collective agreements are not permitted, unless they relate to certain matters (e.g. participation in anti-bullying/harassment programs, health and well-being or environmental initiatives). Individual employment contracts between employers and employees are permitted.  This still leaves unresolved, the problem that building industry participants may make oral agreements which might have the effect of undermining the intended operation of the Building Code. 
  • Sham contracting: contractors and building industry participants must not engage in conduct prohibited by Part 3-1, Division 6 of the FW Act (e.g. misrepresenting employment as an independent contracting arrangement), and must not enter into a harsh or unfair service contract as defined in Part 3 of the IC Act.
  • Over-award payments, etc: contractors and subcontractors must not be coerced or pressured to make over-award payments, or to contribute to a particular redundancy or superannuation fund.
  • Freedom of association: policies must be adopted to ensure that persons (e.g. employees and subcontractors) are able to choose whether or not to be members of industrial associations, to be represented by such bodies, or to participate in lawful industrial activities. For example, ‘no ticket no start’ signs must not be displayed on work sites; employers cannot be required to employ a non-working union shop steward; and union ‘bargaining fees’ cannot be imposed on non-members. Equally, forms cannot be used to identify the union status of employees or subcontractors; and employers cannot refuse to employ, or terminate, employees because of their union status.
  • Right of entry: union entry rights under the FW Act and federal/state/territory work health and safety (WHS) laws must be observed.
  • Dispute settlement: enterprise agreements must include a genuine dispute settlement procedure, which makes provision for final arbitration of disputes by an independent third party (e.g. the Fair Work Commission).
  • Workplace reform: contractors and building industry participants must comply with the requirements of the FW Act when making enterprise agreements, including the good faith bargaining obligations. New provisions have also been introduced prohibiting the rejection of proposals in agreement negotiations on certain grounds.[1]
  • WHS and rehabilitation: implementation of a WHS and rehabilitation management system, and (where the contractor or building industry participant is the principal contractor on a site) a WHS and rehabilitation management plan which meets certain minimum requirements.
  • Security of payment: compliance with all applicable laws/requirements regarding security of payments.

Consequences of breaching the Building Code

Under the Supporting Guidelines, FWBC has the main responsibility for monitoring compliance with the Building Code by contractors and building industry participants.

The Code Monitoring Group in the Department of Education, Employment and Workplace Relations also has a role, including making recommendations to the Minister on the sanctions applicable to parties that breach the Building Code.

Those sanctions may include precluding a party that has breached the Building Code from tendering for Commonwealth-funded work for up to six months.

How does the Building Code interact with state government codes?

Minister Shorten has indicated that the new Code “reflects the original intent of the National Code of Practice for the Construction Industry as agreed between the Federal and State Governments in 1997. That intent was to lift the behavioural standards of the industry and to secure compliance with all legal obligations and ethical tendering requirements.”[2]

Perhaps implicit in these comments is a suggestion that building codes introduced at state level have moved away from the intent of the original National Code, with some state governments seeking to use building industry procurement rules to counter the federal Government’s workplace relations policies.

Recent events in Victoria have illustrated this tension. The Victorian Government has taken steps to ensure compliance with its own Implementation Guidelines to the Victorian Code of Practice for the Building and Construction Industry (Victorian Code Implementation Guidelines) (operative from 1 July 2012; a new version was issued in December 2012).  The NSW Government has also released draft Implementation Guidelines which are likely to commence operation by 1 July 2013. 

Among other requirements, the Victorian Code Implementation Guidelines contain provisions prohibiting “union-friendly” clauses and clauses restricting the engagement of flexible forms of labour from being included in enterprise agreements.

The Construction, Forestry, Mining and Energy Union (CFMEU) has brought proceedings alleging that by excluding (or threatening to exclude) certain building companies from tenders for a Victorian Government-funded building project, the Government has breached the “general protections” provisions in Part 3-1 of the FW Act.

In another proceeding, CFMEU v Eco Recyclers Pty Ltd [2013] FCA 24 (24 January 2013), Justice Bromberg of the Federal Court of Australia found that there was a prima facie case that McCorkell Constructions Pty Ltd had breached Part 3-1 by refusing to engage or make use of the services of Eco Recyclers Pty Ltd – because Eco had an enterprise agreement that did not comply with the Victorian Code Implementation Guidelines.

While both these proceedings await final determination, the federal Government has sought to directly address the conflict between the federal and state rules relating to agreement content.

This has been done through new provisions in the Building Code which provide that, in enterprise agreement negotiations, a contractor or building industry participant must not refuse to consider another bargaining representative’s proposal on the ground that a third party has indicated that:

  • it will not procure services from a person covered by an industrial instrument containing a particular type of provision(s); or
  • it will procure services only from such a person.

In practice however this is unlikely to achieve more than to add to the existing good faith bargaining obligations under the FW Act.  Ultimately, the Building Code will not prevent a Building Contractor refusing to agree to include terms in a proposed collective agreement that are inconsistent with state government codes such as the Victorian Code Implementation Guidelines.  Moreover, putting aside the question of any legal consequence attaching to a contractor acting adversely against a prospective subcontractor or employee in reliance on a state government Code, Building Contractors wishing to tender for state government building work would be unwise to include provisions in a collective agreement that are prohibited by a state government code such as the Victorian Code Implementation Guidelines.

What should building industry employers do next?

  • If your organisation is engaged in or tendering for any projects to which the Building Code applies, ensure that it is code-compliant in all respects.
  • Check to ensure that any subcontractors your organisation engages are code-compliant.
  • Review all project agreements, tenders and contracts (e.g. with subcontractors) for compliance with the Building Code.
  • Determine whether a state government building code applies to particular projects, and if so, whether it is possible to comply with both federal and state codes.
  • Seek advice before making decisions about the engagement of subcontractors in reliance on a state government code.

  [1] See further below under heading “How does the Building Code interact with state government codes?”.

  [2] Supporting Guidelines (Foreword from Minister), 1 February 2013.

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Stephen Price

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Jacqueline Parker

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Jane Hall

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Anthony Forsyth

Consultant. Melbourne
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