NSW joins standoff over building and construction industry guidelines

On 22 March 2013, the New South Wales Government released the Implementation Guidelines to the New South Wales Code of Practice for Procurement: Building and Construction (NSW Code Guidelines).  This is the latest addition to the range of federal and state government policy instruments which seek to achieve industrial relations outcomes in the building and construction industry by way of commercial leverage provided by the public procurement budget.

With application to all public building and construction work that is the subject of an expression of interest or request for tender from 1 July 2013, the NSW Code Guidelines include a number of substantial changes to a draft version circulated in late 2012.  In particular, the scope of the guidelines has been expanded to cover privately-funded building and construction work, as well as conduct by related entities of a party expressing interest or tendering for NSW government projects.  This more ambitious scope aligns the NSW position with that applicable under the Victorian Government’s Code Implementation Guidelines (Victorian Code Guidelines), which were re-issued in December 2012.

The issuing of the NSW Code Guidelines also escalates the ongoing uncertainty about the concurrent Commonwealth and state approaches to regulation of workplace relations in the building and construction industry.  It is expected that the Queensland Government will shortly follow suit when it finalises its draft guidelines.  With legal cases involving major builder Lend Lease and demolition company Eco Recyclers still pending before the Federal Court in Victoria, the extent to which states have a free hand to implement these policies (having regard to the general protections provisions in Part 3-1 of the Fair Work Act 2009 (Cth)(FW Act)) also remains unresolved.

Industrial regulation through commercial terms

Since at least 1996, Australian governments have sought to influence industrial relations outcomes in the building and construction industry through the commercial leverage provided by government funding of construction projects.  

In 1997, following the introduction of the NSW Code of Practice for the Construction Industry in the previous year, the Commonwealth, state and territory governments agreed to the National Code of Practice for the Construction Industry. Since that time, various codes and guidelines have been issued and revised at both levels of government.  The policy interest in this area escalated significantly after the findings of the Royal Commission into the Building and Construction Industry were published in 2003.

More recently, there has been a growing tension between Victoria’s stronger approach to enforcing guidelines limiting ‘pro union’ clauses and clauses restricting workplace flexibility in enterprise agreements, and the approach taken at the Commonwealth level.  As outlined in a previous In Brief,[1] on 25 January 2013 the federal Government moved its policies into the statutory arena, issuing the Building Code 2013 (Commonwealth Code) as a statutory instrument which took effect (along with the Supporting Guidelines for Commonwealth Funded Entities) from 1 February 2013. This step raised queries over whether the Commonwealth was seeking to assert the primacy of its regulatory approach, which involves a more permissive view of union-friendly clauses in agreements.  The NSW Code Guidelines can be seen as the latest challenge to federal regulation in this area.

Key features of the NSW Code Guidelines

The NSW Code Guidelines underline the NSW Government’s willingness to actively monitor industrial relations issues in the building and construction industry.  Key features of the NSW Code Guidelines that tenderers, principal contractors and their subcontractors should be aware of include the following:

  1. As indicated above, the NSW Code Guidelines commence on 1 July 2013 and will apply to all public building and construction work that is subject to an expression of interest or request for tender on or after that date.  Parties seeking such work will also need to comply with the Guidelines in respect of their privately funded work. In addition, related entities of any party that expresses interest or tenders for public work will be required to be compliant with the Guidelines in respect of any building and construction work they undertake.  For these purposes, a ‘related entity’ is a related entity as defined in the Corporations Act 2001 (Cth) (e.g. a holding company or subsidiary of the tenderer); which is also ‘connected’ to the tenderer in certain specified ways (e.g. it can control or influence the tenderer’s activities or financial/operating policies, or is financially interested in the tenderer’s success or failure).
  2. The NSW Code Guidelines are intended to apply in addition to the Commonwealth Code, even where there is an inconsistency between the two instruments.  Industry participants looking to pitch for both Commonwealth and NSW government construction work will need to comply with both codes.  An illustration of the potential difficulties caused by the concurrent operation of the federal and NSW codes is provided by the critical matter of subcontractor clauses in agreements. These clauses typically provide that subcontractors are to receive the same terms and conditions as employees covered by the agreement (this kind of clause was found to be a lawful term in an agreement in the ADJ Contracting litigation).[2]  The NSW Code Guidelines specify that arrangements or agreements that constrain or otherwise restrict the use of independent contractors and the terms of their engagement will be non-compliant.  In contrast, the Commonwealth Code simply requires compliance with the agreement-making requirements of the FW Act, which would permit the inclusion of a clause like that upheld in ADJ Contracting
  3. The NSW Code Guidelines introduce a duty on principal contractors to actively pursue legal remedies in relation to industrial action on construction projects.  Contractors must use their best endeavours to pursue legal remedies, and a failure to instigate appropriate legal remedies may be a breach of the NSW Code Guidelines.  This is clearly intended to provide the impetus to drive changes in industrial relations attitudes and practices ‘on the ground’ within the building and construction industry.
  4. The monitoring and compliance arrangements under the NSW Code Guidelines mirror the approach under the Victorian Code Guidelines.  The Construction Compliance Unit (CCU) within NSW Industrial Relations will be responsible for monitoring compliance and investigating alleged breaches of the NSW Code Guidelines.  The CCU will report outcomes to the relevant NSW Government client agency involved in the construction project, and the Treasurer and Minister for Industrial Relations for consideration of appropriate sanctions. These sanctions may include warnings and reports to appropriate statutory bodies, as well as the possibility of reduced tendering opportunities either at an agency or government-wide level.
  5. The draft version of the NSW Code Guidelines left open the forms of project structures that would fall within the scope of the guidelines. However, the final version now specifies that alliance contracts and design and construct (D&C) procurement methods are covered, along with public private partnerships and any other project funding arrangements.  This reflects the Victorian approach, which is currently under challenge in Federal Court proceedings brought by the Construction, Forestry, Mining and Energy Union alleging breach of Part 3-1 of the FW Act.  One of the issues that has arisen in that context is whether there can be any “adverse action” against a contractor arising from a government decision not to award a tender, in circumstances where the entity with whom the government would have entered into the project contract is a newly-formed special purpose company representing the successful consortium.  The Victorian Government has taken the view that the existence of an interposed entity of that nature takes the conduct outside the scope of the FW Act prohibitions on refusing (or threatening to refuse) to engage a contractor because they are covered by a particular agreement. The validity of that approach awaits determination, along with other aspects of the interaction of the Victorian Code Guidelines and Part 3-1 of the FW Act, which will also have relevance to the practical operation of the NSW Code Guidelines.

Developments in this area are moving quickly.  We will continue to provide you with updates on key legal decisions and further regulatory changes in future In Briefs. 

  [1] See New national Building Code issued and given legislative backing.

  [2] Australian Industry Group v Fair Work Australia [2012] FCAFC 108 (14 August 2012); see Full Federal Court upholds contractor and union rights clauses in ADJ contracting case.

The content of this publication is for reference purposes only. It is current at the date of publication. This content does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.

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