The Third Way: Welcome to the Third World
Union Power in Context: Industrial Relations in the Building Industry
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
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.
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
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
- 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
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
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
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
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
'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
A copy of the report so far as it deals with project agreements
and the VBIA is attached (Appendix
F. The Productivity
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.
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.