Corrs High Vis: Episode 50 – IR reform and the construction industry

Intro: Welcome to this episode of the High Vis podcast. Today we will be hearing from Graeme Watson and Claire Brattey as they discuss the impact of the IR Reform bill in the construction space.

Claire:

Good afternoon everyone I would like to introduce you to Graeme Watson (who needs no introduction) but for those of you who may not be so familiar with the name, Graeme has recently joined Corrs as a senior partner and is considered to be one of Australia’s leading IR experts. He has spent 19 years as a partner at Freehills, ten years as Vice President at the Fair Work Commission and recently as a Senior Advisor to the Government.

Today we are delighted to have him here at Corrs, and we are going to talk about IR reform and how that may impact the construction industry.

So Graeme, given your vast experience in this sector could you give us some thoughts on how you see the IR space developing in the construction sector over the next five to ten years?

Graeme:

Okay, thank you Claire and it’s great to be part of Corrs and contributing to this discussion.

The construction industry and IR are two things that don’t necessarily go well together. It is a little bit of a disaster zone if you look at the difficulties of a strong union, militant union and the extent of disruption and power that can be imposed across the sector, and the sophistication of their techniques.

We talk a lot in general reform about the enterprise bargaining system. The construction industry contributes to most of the enterprise agreements that are actually made, except on any real analysis there is no enterprise bargaining. It’s pattern bargained agreements, very little flexibility allowed by the union to depart from their standard arrangements.

A history of militancy and lawlessness that is another dimension all together and I think any consideration a reform has to deal with both of those different limbs.

So in terms of the lawlessness, we have had the ABCC re-established. There is the building industry code that applies to the public sector funded work. We have a history of prosecutions being taken by the ABCC against particular examples of behaviour. Quite often that deals with situations of several years before and that’s hardly an immediate remedy for a current problem. And there are increased fines now available and starting to cut into the system, but the history as the courts have made pretty clear is that paying a fine several years after the event is simply a cost of doing business for the union.

The union has as a result of their pattern agreements has a money stream that’s flowing from commissions into worker entitlement funds and other benefit funds and superannuation, and those funds produce a pretty wealthy balance sheet for the CFMMEU which other unions are looking to emulate and spread.

So it is not a pretty pattern, it’s not an example of an industry where there is great potential, and anyone in the construction industry needs to accept the realities of that situation and the limitations that that presents. Any attempt to change and reform really needs to be thought through very carefully and there needs to be smart responses.

Claire:

So just on that Graeme, I am sure that the union would be saying ‘but it’s great that we have pattern bargaining in place because it means that our members have better rights, their wages are going up 3% to 4% each year for the next three years’. From their perspective, because pattern bargaining is in place, it means employer costs go down. It is a sentiment that we often hear from the union movement – that we are actually saving costs because they have in place their agreements for three or four years giving stability. What would be your comment to that?

Graeme:

Well I think the evidence is the cost of building projects in Australia is significantly a long way from best practice, and the costs that comes through from those union agreements, it is good for the employees generally. If they are working on a union site compared to a non-union site you’re on a much better set of terms and conditions so those employees know what produces the better results for them.

But when so much of construction and infrastructure is government money and you are paying so much more for those projects then that means there is less infrastructure, less hospitals, less schools can be built with that amount of money.

So as a community that is not a good situation, and it is well established by the evidence and there is a case for change. The difficulty is how you make the change and it is very difficult for an individual company to buck the system in any way and usually not a smart thing to do.

There is potential both in terms of law compliance, legal compliance, for the government to do more. There is also potential in terms of productivity for the government to do more by virtue of the building code for publicly funded work, and although the Ensuring Integrity Bill failed in the Senate a year or so ago there is a distinct prospect of bringing that back with a particular construction industry focus.

Another opportunity to improve work practices to be undertaken is the building code review which I expect the government to initiate and invite input into. In terms of bargaining again that is a fraught process at the moment, and there have been some recent attempts to break out of the system and those things could be looked at, but obviously need to be treated with great caution.

Claire:

Indeed, and we have seen recently the decisions that have been in the Fair Work Commission where the pattern bargaining agreements have got through with some of the large building companies but yet ones that are tending to go out on their own and doing unique boutique enterprise agreements have not been so successful in having their agreements approved. At Commission level do we foresee a change in that space, or is it something that it is just going to continue down that path until we see much more of a fundamental change perhaps at legislative level?

Graeme:

It really is a very disappointing situation that with the Union Agreement with the letters CFMMEU on the top of it an application can be approved within ten or 11 days, but for one that is not supported by the union it is several months and it gets rejected because certain clauses of the agreement are said to not be adequately explained to the employees who know the agreement because they work under it now and substantially voted in favour of its continuation with wage increases so that demonstrates an approach from the Commission which is unhealthy.

Things are not all lost in that regard, but I think it indicates the nature of the difficulty that you are pushing against the system and the system very much is used very effectively by the CFMMEU. In those particular agreements if you take an example, if something hadn’t been explained adequately because taking the union’s name off it means has some implications for dealing with grievances during the life of the agreement, and if that was the only matter you could say ’okay well explain that matter further plus everything else we explained previously', address every matter that the Commission says was not adequately explained and you have another vote. And if the employees are keen to continue to support that, then it is possible in fact to learn from those decisions even though you have been put through the hoops and get an agreement over the line. But there is a significant investment in that and just to get to the point of getting a positive vote, where the union would have campaigned very strongly against it, and then for the company to suffer the ignominy of having the agreement voted down is a significant setback in the eyes of employees and the employees are necessary in order to continue to support the approach of the company to have the necessary flexibilities without taking away benefits there is no suggestion of that but simply departing from the latest version of the pattern deal. So there is some potential there but you don’t do it lightly and you need a lot of work and support behind it.

Claire:

And in that space as well Graeme, we have just recently in the last couple of days we have seen the court orders again and penalty payments to victims of the CFMMEU for unlawful pickets and New South Wales Police and reading between the lines in relation to that case some of those penalties came out because the crane operator wouldn’t put in place the union pattern bargaining agreement.

Do we think there is more work to be done in that space with the regulator? Do you think perhaps the ABCC needs to be given more powers in that space or is there another alternative way?

Graeme:

Well there is so much work that could be done by the ABCC to address every breach and every transgression by the union that any further resources would only help more. The increased fines are only just starting to cut in as a result of actions taken a couple of years ago and flow through the courts and you have seen the size of those fines increasing. You are going to get more publicity about this matter because the High Court has agreed today to take on a case to look at whether the penalties that are imposed have regard to the track record of the union.

There will continue to be attention to these matters and there must be a point that the extent of fines actually works as an adequate deterrent and the sooner you can get there the better, and because there needs to be that change of behaviour that the penalties are directed to address, but I think where at the moment the unions are saying it is a cost of doing business.

There needs to be more in order to change that – that is a cost that we can’t afford to continue. Out of these benefits that fund the union, effectively by virtue of the pattern agreements that require payments to be made into various funds, it is essentially the employers and then ultimately the government or clients that are paying for all these benefits, watch the flow of the money. It flows basically from the community in one way or the other through their taxes or for the payment as a client through into their hands and back into fines. It’s just a circular process which adds to the cost of construction and must limit the type of development and construction and infrastructure that is then available to the Australian community.

Claire:

And you raise a very good point there because soon the international borders we hope will open up and we know that there is an appetite within Australia to attract foreign investments however that may manifest itself whether it is in the building of new factories and we talk about the new Silicone Valley that may well be here however the manufacturing industry needs to be bolstered so we can become self-sufficient. Surely that means construction of major projects whether it be the roads into these places, the plants themselves. How attractive is Australia looking to foreign investors at this point in time given the complexity of our system?

Graeme:

Well those people who have to put proposals together to attract investment would say that we are not helping our cause, and where there is a choice to make investments elsewhere if you are an oil and gas producer, do you look to Australia or do you look to Africa? Same for mining. And would you look elsewhere in the world where there might be not anything like these sort of problems there?

We have been very lucky being a resources rich country, but a lot of the infrastructure around the resources sector is pretty weak. It needs greater investment, the rail network should be a lot stronger – where you are talking about the freight industry it is really, the cost of that infrastructure is borne by the users which are not shared by the travelling public on roads etc. It is all borne by the users so that is all an added cost to investment in infrastructure and the like. So it is holding us back, we could do far more, and we need to continue I think our efforts to do something about the building industry to improve that situation.

Claire:

So Graeme, do you think that we will see a resurrection of the provisions concerning the Green Fields Agreement that we saw in the Omnibus bill?

Graeme:

Yes I think that is a necessary reform. It makes sense, the case on the merits has really been made out. I think it is unlikely the government, having had that part of the bill voted down by the Senate effectively, I think it is unlikely that will put it up again before the election, but it is such an obvious and useful change to take that risk factor away from major projects and the benefits that major projects deliver in terms of flow on of jobs and everything else. You only need to attract one more project and you have really produced a lot of extra immediate jobs and long term royalty payments for the country and so it is an important reform, and I expect it to come back in the next term of government, probably regardless of which party is elected.

Claire:

Graeme Watson it has been a pleasure. Thank you.

Graeme:

Thank you Claire.