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From the Desk of the Executive Director

Ken Phillips is co-founder and Executive Director of Independent Contractors of Australia. He is a published authority on independent contractor issues and directs research on related commercial and trade practices issues. Through his numerous articles in newspapers and think-tank and academic journals, Ken is known for approaching issues from outside normal perspectives and is frequently sought out for media comment.

Unions can't paint over a construction revolution

Tuesday, June 25, 2013

The militant construction union the CFMEU has announced 'we've won', in its battle to stop the Victorian government's construction code. But closer attention shows the CFMEU's victory declaration is spin.

The code is designed to give the Victorian government control over its infrastructure construction costs. It's been put in place because blowouts in construction costs threaten the viability of the government's infrastructure budget. The code simply states that if a construction firm has bad, unproductive industrial relations agreements the firm need not bother to tender for government work.

The code came into effect in mid 2012. It's already, but quietly, started to change what's happening in Victorian construction. Further, the New South Wales and Queensland governments are replicating Victoria and have similar construction codes starting on July 1 this year. It's possible that Western Australia may do the same. And an Abbott government would likely follow, assuming a change of government in September.

It's a big reform agenda using a simple administrative tool. If successful it holds the prospect of re-energising private and public infrastructure investment. But it's not what the construction unions want. To the construction unions the code threatens their hold over the construction sector

Late last year the CFMEU launched a challenge to the legal validity of the Victorian construction code, arguing it breached the 'adverse action' provisions of the Fair Work Act.

The adverse action provisions of the FWA are a relatively recent invention of the Labor government – weird, illogical and commercially dangerous. The legislation says (in part) that if a "person proposing to enter into a contract ... with an independent contractor ... refuses to engage the independent contractor..." the person is in breach of the Act.

Under the FWA for example, if you wanted to paint your house and you didn't choose a particular painter because you thought they'd do a bad job, you could be in breach of the 'adverse action' provisions. The Victorian government says that it only wants to use contractors that it thinks can do a good job.

What's occurred is the Gillard government creating industrial relations law designed to control the very commercial decisions that are central to the operation of the economy. Australian unions (the CFMEU) are effectively saying that they control construction and in this instance the Federal Court in May ruled in their favour. Hence the CFMEU are crowing over their 'victory' and letting every construction business know this.

The issue is not settled, however, because the Victorian government has appealed the ruling to the full bench of the Federal Court.

But wait a minute. Yes, certainly the ruling as it currently stands means unions can fly their union flags on worksites and other things. But there's a more important detail that means the code is still highly effective.

The big construction firms (now a duopoly), in conjunction with the unions control construction by requiring subcontractors to have the same industrial relations arrangements as those used by the big firms. It's this industrial 'trick' that is key to the duopoly's industry dominance, the power of the unions, the minimisation of competition and the cost blowouts.

But in construction it's the subcontractors and independent contractors who actually do the work. The head contractors are mostly just managers of the construction jobs not usually employing a lot of workers. The really important dynamic in construction is how well the subcontractors can do the work.

Fortunately, even with the restrictions resulting from the May Federal Court decision the Victorian Code remains highly effective. The reason is that if a head contractor forces or pressures a subcontractor into having an enterprise agreement the head contractor is in breach of both the Code and the Fair Work Act.

This means that subcontractors are free to have the workplace arrangements they want. The head contractor cannot control the industrial relations agreements of subcontractors. And the subcontractors have protection from the head contractors in this respect through the Victorian Construction Code Compliance Unit (CCCU).

If a head contractor tries to pressure a subbie into an agreement, the head contractor can be banned from government work and potentially face prosecution under the very 'adverse action' provisions the CFMEU has used against the Victorian government.

This has been made clear by the head of the CCCU, Nigel Hadgkiss in an interview I conducted with him recently.

What can be seen from this is that the Victorian governments determination to extract value for money from its infrastructure spend remains a strong, operating agenda. The construction code is very much alive!
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