The Third Way: Welcome to the Third World

Union Power in Context: Industrial Relations in the Building Industry

Ross Dalgleish

Introduced by Des Moore

The very recent publication of the Productivity Commission's report on Work Arrangements on Large Capital City Building Projects makes it particularly timely that we should have Ross Dalgleish to talk to us on the subject of trade union power in the Construction Industry. From 1990 to 1992 Ross was Director of Operations in the Gyles Royal Commission into the NSW Building Industry and he then became Director of the Building Industry Task Force which was established in 1993 to implement the Commission's recommendations. Perhaps Ross may even say something about why, after the Carr Government was elected in 1995, it abolished that Task Force, halted the recommended deregistration proceedings against the CFMEU and, as the Productivity Commission report puts it, also 'eased the prohibition of compulsory unionism'.

But, the abolition of the Task Force did at least allow Ross pursue a career at the NSW bar, to which he was admitted in 1996. His pursuit of a specialist practice which includes both criminal and industrial relations matters offers a mix which seems particularly relevant to this industry and to the concerns of this Society.

The Government's proposed amendments to the Workplace Relations Act 1996 -as contained in the Workplace Relations Legislation Amendment (More Jobs, Better Pay) Bill 1999---also make it timely for the HRN to have Ross' analysis of trade union power in an industry which offers a test case for the capacity of compulsory arbitration and legislative regulation to provide industrial harmony. To date that legislative regulation does not have a good record. I have circulated some copies of the Key Findings of the Productivity Commission report, plus a graph and a table showing the increase in the rate of industrial disputation in recent years. It is relevant to our criticism of the Workplace Relations Act 1996 that the Commission's report states:

    Industry-wide strikes are often 'unprotected industrial action' as defined by the Workplace Relations Act 1996 (WRA 1996) and so employers could theoretically seek legal remedies. This option is rarely used because it can be costly, slow to reach a final outcome, and may generate a site-specific dispute which would enable the client to impose financial penalties on the head contractor. As a result, large capital city building projects remain vulnerable to industry-wide strikes. There appears to have been a shift towards such strikes in recent years.

The question is whether the Government's proposed amendments to the existing legislation will overcome this problem. Those amendments would oblige the AIRC (to become the AWRC) to issue orders to stop or prevent unprotected industrial action within 48 hours of an application being made, and would also prohibit breaches of freedom of association under the guise of project agreements.

Ladies and gentlemen, now that Big General Norm has departed to quieter pastures and Little General Bill is also moving on, we may be permitted to hope that the days of 'no-ticket, no-start' are numbered. We looking forward to hearing from Ross about matters relevant to this and related issues in the construction industry.

A. Introduction

The advertised topic for this paper was 'Trade Union Power in the Construction Industry'. I have broadened the theme somewhat, because power is a relative concept. It is meaningless without context. It is overly simplistic to see union power as the root of all the problems of industrial relations in the building industry.

Those problems are real. There is a national downward trend in the number of working days lost due to industrial disputes across all industries: a 43% drop from 1996 to 1998. However, the building industry is doing more than its bit to prop up these figures. Days lost in the industry increased 100% from 1997 to 1998---from 107,800 to 210,900 (ABS Catalogue 6321.0). The industry employs 7% of the total workforce, yet contributed 40% of time lost due to industrial action in 1998.

Victoria is by far the worst-hit of the eastern States. The attached table on page 34 of the Productivity Commission Report published this week ('Work Arrangements on Large Capital City Building Projects') is based on ABS figures (Appendix A). Although these show that the halcyon days of the Building Industry Task Force in NSW (1992-95) are over, Victoria has in the last three years still managed to have more than double the trouble in NSW, in terms of working days lost.

B. The Structure of the Building Industry on Major Projects

The industrial relations issues arise in the commercial building industry---not residential building or civil engineering construction. It is for this reason that both the Gyles Royal Commission in Sydney and the recent Productivity Commission report focused on major city building projects.

These projects are characterised by a large number of small subcontractors in specialist trades which employ 85-90% of workers on site. Those subcontractors are engaged on generally fixed-price contracts with the head contractor, who employs a small number of staff engaged in co-ordination of the subcontractors to ensure appropriate sequencing of work, site safety and the like. The head contractor is typically on a 'fixed-price' contract with the client---there of course being provision in the contract for variations. Sometimes the head contract might provide for 'liquidated damages' payable by the head contractor for delays beyond a specified contract duration.

C. Historical Perspective

1. The NSW Gyles Royal Commission

The findings of the Gyles Royal Commission in its Report of May 1992 included the following :

Observance of the law and law enforcement in general play very little part in the industry. The law of the jungle prevails. The culture is pragmatic and unprincipled. The ethos is to 'catch and kill your own'....
The effect of illegal activities upon the culture of the industry and upon the commercial and industrial morality of participants in it is, in the long run, greater than the direct economic consequences. Once it becomes acceptable to break, bend, evade or ignore the law and ethical responsibilities, there is no shortage of ways and means to do so. Those who pay and suffer the other consequences of disruption in the end are the public.

(Vol 4, page xiv)


Where possible, the BWIU endeavours to enforce uniform outcomes, often with the cooperation of the large builders and their associations ...These employers are then enlisted to enforce outcomes on subcontractors and recalcitrant competitors. The BWIU stands behind them as the police for enforcement of the agreement.
These outcomes are largely extra to and above the award, so that now there is a very significant margin of increased labour cost for BWIU controlled sites, including union dues, CERT, BUS, Top Up insurance, site allowances and sundry other special allowances and benefits...
The most pernicious of these (restrictive labour practices are various forms of the closed shop, again often with the cooperation or acquiescence of employers. The most powerful is the 'no ticket, no start' policy, which is pervasive on larger non-cottage sites, particularly in the city.

(Vol 5, Industrial Relations, Overview at page xviii, paras 16-19.)

2. The Building Industry Task Force in NSW

The BITF's principal function was to act as a law enforcement agency in the building industry after the Royal Commission. Royal Commissioner Gyles QC (as he then was) was firmly of the view that the most effective way of dealing with illegalities in the industry was by means of the co-ordinated use of civil remedies and criminal prosecutions.

One illustration of a practical strategy the BITF used in respect of industrial relations was its response to allegations of intimidation by union officials. The BITF ensured that an investigator was promptly sent to a site where threats had been allegedly made. Inevitably, any threat of economic harm disappeared as soon as the investigator arrived, often on the basis that 'there must have been a misunderstanding'. Work resumed and the costs associated with potentially illegal industrial action were saved.

3. NSW Codes of Practice

The Government of New South Wales introduced in October 1992 a Code of Practice and a Code of Tendering for the Construction Industry in New South Wales. Those Codes still apply (with some modifications) to all NSW Government construction projects and have been adopted by a number of private clients. The Construction Policy Steering Committee, consisting of representatives of major NSW Government construction authorities, is responsible for the implementation and enforcement of these Codes.

4. CFMEU Deed

The CFMEU avoided deregistration proceedings by executing a Deed with the NSW Government as to its future conduct. A copy is attached (Appendix B).

D. The Relative Power of Building Industry Participants

1. Traditional Industry Participants

The main building union is the CFMEU. It prides itself on militancy and achieving good wages and conditions for its members. It is a big union and well-organised. Compared with a small subcontractor it is very powerful. This is significant because subcontractors employ 85-90% of the workforce in the industry.

Compared with a major head contractor, the CFMEU is not so dominant---but the economic vulnerability of a head contractor with a fixed-price contract often makes it desperate to avoid stoppages.

Compared with a major employer association like the MBA, the CFMEU would be 'in the same league'---the balance between them varying from time to time in accordance with economic conditions in the industry. The building industry has long been a 'boom or bust' industry in terms of the overall level of activity and the state of the industry at the time has a huge bearing on what can and cannot be achieved by the union.

2. Changes in the Power Structure

Industrial relations in the building industry have been volatile for a long time. In part this is because of the fragmented nature of the industry. This does not mean that the problems should be accepted with stoic resignation. The reform process started by the Gyles Royal Commission and continued by the Building Industry Task Force in NSW has since been picked up by the Federal Government.

(a) The Client---Purchasing Power and Codes of Practice

There is another major industry participant, the client. Usually the client is either an institutional investor or a government, Federal or State. Traditionally, the client stayed out of industrial relations. It was almost as traditional for government clients to get 'taken to the cleaners' on major projects. Since the Gyles Royal Commission, that has changed, at least in New South Wales and in respect of Commonwealth Government projects. Labour costs and the cost of disputes affect the price the client has to pay for the project. If there is a climate of disputation, this has to be 'factored in' by tenderers when they bid to be awarded a building project. The same applies to 'industry standards' such as site allowances (however described) and contributions to union redundancy funds. The client is entitled to use its 'purchasing power' to insist on an industrial relations outcome that will be most beneficial to its bottom line. The governments as clients owe this much to taxpayers.

Compared with the purchasing power of the client, the CFMEU, the MBA and the head contractors will not have it all their own way. The purchasing power of government, in particular the Commonwealth Government, can and is being used to resist the automatic imposition of 'industry standards' so that payments to workers can relate more closely to their particular work circumstances.. There are Codes of Practice to be adhered to on both Commonwealth and NSW Government projects. These support the enterprise bargaining position of individual subcontractors, so that they too might have a say in industrial relations. After all, it is the subcontractors who actually employ the workers.

A copy of the relevant extract of the 1997 National Code is attached (Appendix C).

The sanction behind the Codes of Practice is that there is no God-given right to government work. For example, if an alleged breach of the National Code of Practice for the Construction Industry Code is substantiated upon investigation by the Office of the Employment Advocate, future potential contracts with the Commonwealth Government (or on Federally-funded projects) might be jeopardised.

(b) Legislation---The Workplace Relations Act 1996

Apart from purchasing power, the legislative power of governments can obviously play a big role. Apart from economic considerations, laws of course should deal with matters of principle. One example in a modern society is to provide workers with the freedom to choose whether or not they will join a union. Hence we have seen the abolition of union preference clauses in industrial awards and the Freedom of Association provisions in the Federal Workplace Relations Act 1996. This is of particular importance in the building industry where 'no ticket, no start' has long been part of the culture.

The Freedom of Association provisions, based on both the corporations power and the industrial power of the Commonwealth Government, have withstood Constitutional challenge in the Federal Court : Rowe v Transport Workers' Union of Australia (1998) 160 ALR 66 (Cooper J.)

There are of course amendments proposed to the Workplace Relations Act designed to introduce secret ballots, ban closed shops and restrict the right of entry of union officials. Whether these proposals are passed by the Senate remains to be seen.

(c) Enforcement---The Office of the Employment Advocate

These laws will mean little in the building industry unless enforced. The same may be said for the Codes of Practice. The Office of the Employment Advocate undertakes investigations of complaints and, if they are substantiated, can take proceedings in the Federal Court for injunctions, damages and pecuniary penalties. I know from my experience with the BITF that it is most important that a subcontractor has someone to whom he can turn, either to provide advice or to complain to if he is intimidated by a head contractor or the union (or both). Often the mere prospect of intervention by a government agency is enough to prevent a dispute from escalating.

(d) Information

Increasingly, 'information is power'. If a subcontractor is not sure what his rights are he will be easy prey for those with a loud voice who can bluff and bluster. It is not as easy to intimidate a person who knows his rights compared with someone who is not sure. Award simplification has a role here.

Although subcontractors employ 85-90% of the workforce, their access to information has always been poor. The BITF published a 'Subcontractor's Handbook' in December 1994 which set out in simple terms the legal rights and obligations of subcontractors. A copy of the Table of Contents is attached (Appendix D).

In my view an updated Handbook (together with a capacity for quick response by a government investigative agency) would go a long way towards preventing abuses of power such as :

'Pay the dues for all your workers or I'll go through your books'

'If you don't agree to pay contributions to redundancy/ sign the pattern agreement, we'll make your site the safest in Sydney.'


E. Pattern Bargaining and Industry Standards---The Level Playing Field

By definition, an industry-wide 'level paying field' is the opposite of a competitive labour market and works to the economic detriment of the client.

In practice, there can be much intimidation associated with a subcontractor being 'signed up' to a 'pattern' enterprise agreement, by the CFMEU or a head contractor, or both.

The Productivity Commission described the performance effects of pattern bargaining as follows (at 51) :

Industry/trade level negotiations over actual rather than minimum conditions (that is industry and pattern agreements) restrict the ability of firms to negotiate their own work arrangements. This reduced flexibility limits the ability of firms to compete for employees or projects on the basis of different work arrangements. It may also reduce the capacity for firms to respond efficiently to changes in their competitive environment. Furthermore, where wage increases are negotiated at an industry/trade level without corresponding productivity improvements, unit labour costs will increase.

A copy of the report so far as it deals with project agreements and the VBIA is attached (Appendix E).

F. The Productivity Commission Report

The report on large capital city projects was published on 24 August 1999. A thumbnail sketch of its findings is as follows :

1. Work arrangements in Melbourne were less flexible than in Sydney or Brisbane.

2. The time lost through disputes remains high.

3. Contractual pressures on head contractors make them vulnerable to industrial action.

4. There is reduced inter-union rivalry because of amalgamations.

5. Subcontractors have limited influence over work arrangements with their employees.

6. Head contractors should not control the remuneration of employees of subcontractors.

G. Conclusion

Unions in the building industry obviously find it administratively easier to deal with a head contractor and then get that head contractor to compel its subcontractors to fall into line on a whole range of issues---such as compulsory unionism, overaward payments, site allowances. Also, head contractors, not employing many workers themselves, have no particular interest in resisting union demands. Their concern is to avoid delay caused by industrial disputes. In the end, the clients will pay whatever 'industry standards' are added on to the labour cost.

The clients (in particular governments) can use their purchasing power to return some basic industrial relations functions to those who employ the workers in the building industry, namely the subcontractors. It is in their economic interests to exercise this power.