At week five of the election campaign, little attention has been paid to industrial relations. Yet should Labor win, its first act will likely be abolishing the Australian Building and Construction Commission (ABCC) – the trigger for the last election.
However, swap the B for a C and you’ll notice that a similarly-named acronym – the ACCC – will remain. The Australian Competition and Consumer Commission offers a better empowered (and less politically-divisive) solution to the most damaging aspect of lawlessness in the construction sector: restricted competition.
Every 10 years or so, like a dependable comet, the construction industry is subject to a royal commission (Gyles 1992, Cole 2002, Heydon 2015).
Each has recommended an industry-specific regulator to address endemic industrial lawlessness. Even the Rudd/Gillard government retained one (Fair Work Building and Construction) with Gillard acknowledging “serious problems existed” and that abolition “would not have been a responsible course”.
However, those regulators (and the politicians that enacted them) have been off-tack.
Lawlessness in the construction sector is often viewed through the prism of industrial relations. However, most unlawful conduct is a function of anti-competitive behaviour, whereby coalitions of established builders, larger subcontractors and the CFMMEU influence who wins work. Particularly in the lucrative commercial construction markets of CBDs, builders tend to award contracts to union “approved” contractors – i.e. those with union enterprise bargaining agreements.
Take the ABCC’s 2017 prosecution of Dig-It Landscapes, which unlawfully terminated its subcontract with a waterproofing contractor because it didn’t have a union enterprise bargaining agreement. The court heard that when the waterproofing contractor sought an agreement from the union, it was turned away, with the union site delegate stating that: “I don’t like your chances of getting an EBA. I’ve got another eight EBA waterproofing companies to choose from”. In other words, the shop was closed.
In an earlier 2016 prosecution by FWBC of builder J Hutchinson, the court found the builder told a preferred tiling contractor that “unfortunately, without a union-endorsed EBA, we will not be able to engage [you]”. The builder conceded that, on projects of $40 million or more, typically 75 per cent of its contractors would have union EBAs.
Builders often engage union-endorsed contractors for fear of union disruption, but this “preference” has become institutionalised. As Stephen Sasse (ex-Leightons Group) explained to the trade union royal commission, that’s because “if all contractors have exactly the same industrial relations agreements” builders “don’t really care if the job… is more expensive, because every other competitor … is bidding off the same platform”.
The result is that larger (and more expensive) union-approved contractors dominate the market, while smaller contractors (which can’t afford union demands at their economy of scale) are pushed to the margins. As the judge commented in the J Hutchinson case: “for subcontractors … a major pathway to growing their business is to be awarded contracts from large construction companies … If the only way in which they can break into those circles is to have made an agreement with the CFMEU, then the whole fabric of our industrial relations system will disintegrate”.
The unions ability to influence tenders is also a vehicle for larger contractors to suppress competition.
In 2018, the ACCC’s Commercial Construction Unit brought cartel conduct charges against the ACT CFMEU, for alleged inducements to contractors to control prices in steelfixing and scaffolding sectors.
If the ABCC is abolished by Shorten’s Labor, it will be viewed by some as a green-light to standard anti-competitive practices. However, the ACCC will remain standing, empowered to impose higher penalties for unlawful boycotts ($750,000, as opposed to the ABCC’s $210,000) and criminal sanctions for cartel conduct. Like the ABCC, it also holds coercive interrogation powers to crack closed shops.
In 2018, the CFMMEU paid a record $1 million in penalties in an ACCC prosecution, after the union made good on the following threat of John Setka (Secretary of the Victorian branch) to Boral executives: “All wars end and once peace is established the CFMEU will be at the table to divide up the spoils. The CFMEU will decide who gets what and what market share Boral will get”. That is not how markets are supposed to work.
The work of successive royal commissions and the ABCC has focused the ACCC on the task.
In its 2019 enforcement priorities, ACCC chairman Rod Sims stated that: “The commercial construction sector will … continue to be a focus area. The work of the Commercial Construction Unit includes supporting the current … prosecution of the CFMMEU [for alleged cartel conduct], and we anticipate bringing further proceedings this year against other parties. This sector faces many anti-competitive and unfair practices: more than most other sectors.”
Competition in the construction sector matters – it’s our second largest industry, employs more than a million people and houses the nation. The fruits of the ACCC’s work will take time, but if they can increase freedom of competition in the sector, then we can also expect greater innovation and lower costs.
Whatever the outcome of the May poll, that ought to be bi-partisan.
- John Nikolic is a construction and industrial relations lawyer, with over a decade of experience in the building and construction sector.