In Search of the Magic Pudding

New Zealand Major Projects---A Ray of Light

Sheldon R L Young

Bearing in mind the current ego-related aberrations of the incumbent Australian Government, the Conference theme of 'In Search of the Magic Pudding' deserves some examination of the words 'magic' and 'pudding'.

My subjective selection of preferred definitions are to be found in Webster's Dictionary:

    'Magic'---Any occult art or science of producing wonderful effects by the aid of superhuman being or of departed spirits

    'Pudding'---An intestine stuffed with meat and fruit and commonly cooked by boiling; or a rare piece of good luck, or a 'snap'.

With some interpretive licence, Webster's recipe for magic pudding could perhaps be:

    'Superhuman beings producing wonderful effects in a boiled intestine, with luck'.

The effects of this recipe are indeed similar to the manner in which the Australian Government behaves, and the effects are not wonderful but illusionary.

If we Australians live in the expectation that superhumans and mother luck will pull us through, then we are heading down the road to becoming an economic wilderness.

On the contrary, the Government of the day, be it Labor or Conservative, cannot build a strong sustainable economy by itself---it is industry which must lead the way with fearless courage and an intractable conviction to make Australia survive in this fiercely competitive world. The role of government is to provide the type of framework in which industry can be encouraged and investment attracted.

The most obvious area in any thinking political economy where total support is needed is labour---not just from an industrial relations point but from an overall productivity basis. For example the United States is battling hard against global competition and deficit control and that is with full trade union support! What possible chance would they have without effective labour support?

To highlight my point, let us briefly examine Victoria's July labour crisis which saw industry reeling under the impact of widespread labour disputes. Approximately one-quarter of Australia's productive capacity was dramatically hamstrung by labour. The magnitude of the Victorian disputes was such that had it occurred in the United States, 60 million people could have been potentially affected the equivalent of twelve-and-a-half States.

Therefore one does not have to be the proverbial Rhodes scholar to work out that Australia is in big trouble again. The 'pink warm glow' of the early and mid 1970s is returning to the Australian labour scene with riveting reality.

When invited to participate in this forum, I was advised that a trans-Tasman theme would be appropriate. In picking up that theme it is first relevant to point out that the three English-speaking countries with a history of serious labour problems are the United Kingdom, Australia and New Zealand. However, despite our earlier catch-cry in Australia and New Zealand that we inherited all our soft labour practices from the United Kingdom, the pendulum of evolution has now swung back. The United Kingdom (the teacher) has long ago turned the corner, while Australia and New Zealand (the students) are still actively campaigning on the campus. Where is Australia's equivalent of the indomitable Margaret Thatcher? Or, as some say, Margaret the magnificent!

It is now time to move closer to the specific theme of my paper, 'New Zealand Major Projects---A Ray of Light'. The specific case-study selected for examination is the upcoming Kinleith Pulp and Paper modernisation project in New Zealand for the NZFP Pulp and Paper Company.

To understand the task facing Forest Products, it is necessary to understand the history of major resource project work in that country.

Firstly, a trans-Tasman comparison is appropriate to set the scene. We in Australia recall with shell-shock reality the notoriety of industrial relations in the building industry in the early 1970s with the green bans imposed by Gallagher/Mundy and their cult followers.

We also recall classic construction areas of the resource sector of the industry, such as Gladstone in the early 1970s and, later, the Latrobe Valley which became known as the 'Valley of Death' in industrial relations circles.

However, over a similar period there were even worse experiences in the resource sector of New Zealand. For example, the construction of the Bank of New Zealand building in Wellington was shut down for six years over structural steel demarcation and other complications. Another example is the Mangere Bridge in Auckland, which was shut down for two years over timekeeping and redundancy payment disputes. The expansion of the Kamerau Pulp and Paper Plant near Rotorua was notoriously bad industrially, with the Ministry of Labour finally opening an office on the job site.

Similarly, in the early and mid 1980s the expansion of the Marsden Point Refinery at Whangerei became a household name because of the orgy of industrial delinquency on the project. The construction of the Glenbrook Steel Mill near Auckland also attained the level of horror status in industrial disruption. Four of the five projects mentioned here were located in what is commonly referred to as the Northern Industrial District. This district has deservedly gained the reputation as the New Zealand homeland for industrial relations blood sports.

There were, however, two major projects executed successfully in New Zealand during this period: the expansion of Tiwai Point Aluminium Smelter near Invercargill in Southland (1980-82) and the huge gas and gasoline project near New Plymouth in the Taranaki (1982-85). The latter project, gas to gasoline, has in fact been heralded as the most successful major construction project in the history of the New Zealand resource industry. This project is often referred to as 'the ray of light'. David Bedford was part of the team on that project.

However, irrespective of the success and impact of the gas to gasoline project, it is fair to say that it was not located in the hell zone of the Northern Industrial District.

In late 1983, the Kinleith Pulp and Paper expansion project commenced near the company town of Tokoroa. The owner, New Zealand Forest Products, faced all of the traditional labour problems of the Northern Industrial District. Major features of the project's industrial relations environment included:

  • soft labour practices handed down almost from father to son in the belief that the 'boss is always fair game';
  • battling to build a plant with historically unsolved demarcation disputes;
  • a job control or site control situation exacerbated by disorderly union leadership;
  • overlap between construction and operations labour practices;
  • a labour force mixture of militant local Maori and Pakeha groups;
  • contractors who had become frustrated if not 'punch drunk', to the extent that contractual claims became the priority of the day rather than executing the obligations of their contracts;
  • dispute mediators who too often went for the soft option rather than decisively dealing with key issues; and
  • the presence of the time-honoured cloth cap syndrome of 'them and us'.

In these circumstances, both budget and schedule were, of course, critically impacted.

Add these ingredients together and it is evident why the owner finally decided to enlist some outside assistance in completing the project.

In mid-1986 Bechtel Pacific Corporation was engaged by Forest Products to stabilise the project with a small select project management team, with an emphasis on effective industrial relations. The alternative facing the owner at that time was to shut the job down indefinitely until trade union and workforce sanity prevailed.

The first decision for Bechtel, as incoming project manager, was either to put up with 'more of the same' or else to 'bite the bullet' and take on the workforce and the unions on their own terms.

The recommendations from Bechtel to the owner were to:

  • identify all major dispute items, both current and future;
  • convene meetings with all parties concerned, including contractors, unions, job delegates and owners representatives;
  • establish an industrial relations roundtable for the project to meet regularly on major issues;
  • take whatever action was needed in the circumstances in the overall interest of the project, irrespective of the immediate downside risk.

In the first several months many major disputes were settled. Productivity increased, the new marriage looked good and the injection of decisive management seemed a winner!

However, the traditional and time-honoured syndrome of 'them and us' prevailed, the workforce took on the boss and the project became coagulated with a number of old wounds that would not heal. Facing a return to the bad old days and ways, the decision was taken to shut the project right down for one month. During this employer-initiated closure, Bechtel chaired a series of negotiations addressed to strict compliance to the procedure for disputes clause. A code of conduct was in fact established, pivoting on the need for the unions to support the project by arresting the job control environment on the job site.

The project was reopened, the workforce resumed work, and productivity increased to such an extent that over the next several months the lost month was made up and more.

At this stage, at the risk of being logical, it appeared that the big problems were behind us and that we all may yet live happily ever after! These sentiments could be described as looking on the bright side or having a false sense of security!

The unions responded remarkably well but the workforce, through a group of the militant minority, hung in there to the point that it became untenable to employ them any longer so they were fired. Industrial warfare broke out quickly, and again Bechtel supported by their client took the hard decision to shut the project down for the second time.

Even tighter dispute procedures were put in place, but this time stipulating that the industrial employee was liable for dismissal if the rules were broken.

In the post-resumption period, history indeed repeated itself, productivity jumped sharply and the shutdown period was made up on the schedule, to the point of finally maintaining the post-takeover schedule.

Looking back on the experience of the expansion project, it was obvious that progress had been made and the valve had been turned, maybe 60-70 per cent. In reality, it was not far enough to justify another injection of capital for the next and larger modernisation program without some front-end guarantees of workforce performance.

It was against this background that hard decisions had to be taken before committing further major capital expenditure at Kinleith.

During the 1987 feasibility stage of the current planned modernisation program Bechtel recommended that a pre-project 'heads of agreement' be put in place as part of the NZFP decision-making process of project approval.

The Forest Products Board, now a joint company with Elders Resources (ERN), took the decision that:

    'a heads of agreement has to be negotiated with the construction unions covering codes of behaviour, guarantees of productivity improvement prior to any consideration by the board for project approval and allocation of funds. Further, that if a heads of agreement is achieved it will not in itself ensure approval, however the project will not be approved without such an agreement.'

Bechtel, the selected project manager, was instructed accordingly and established a strategy for negotiation, knowing that the reality was 'no agreement, no project'! (There is nothing like a bit of incentive to succeed!)

The basis of the negotiation strategy was to use an awesome weapon called the truth: to tell the unions exactly what the Board dictum was and why; To show the unions by factual presentation exactly what the budget and schedule overruns were on the overall performance of the last expansion.

The construction unions, although represented by the toughest representatives of the Northern Industrial District responded both positively and professionally. However, it should be made clear that in this type of situation the risk is always that the unions will sign anything put in front of them to get a project off the ground.

Therefore the point was made clearly at the negotiating table that they should not sign the heads of agreement unless they could live with it and stand behind their signatures.

After two sessions of negotiations in Auckland in April and May and after some considerable blood-letting among the unions, a heads of agreement was signed in precisely the terms sought. The pleasing factor of this negotiation was that both parties, union and employer, were satisfied with the outcome and said so publicly. In other words, it was an effective result in that it was a 'win win' negotiation. The key to achieving this position was the strategic approach of not just blaming the unions for past bad performance but to accepting joint responsibility for that performance.

I don't intend to bore you with a detailed examination of the document (which is reproduced below); however, the theme of the restrictive dictum is reflected in the compliance clause:

    'The unions and Bechtel shall mutually require compliance with this agreement by their officers, employees, members, representatives and contractors and all other persons or organisations associated with the project'.

Again, the theme is spelt out in this extract from a clause covering the most absurd and crippling dispute area in the construction industry---demarcation:

    'It is agreed that demarcation disputes are unacceptable. Unions and Bechtel agree that there will be no lost time, bans or limitations on work whatsoever in respect of demarcation issues because any such issues arising will be resolved by an agreed orderly process.'

Again the commitments here were joint commitments not merely using a baseball bat on the unions' heads.

The negotiation was a satisfying experience working with my client's professional team and demonstrating that right can prevail over might.

Of course, the cynics will say that the heads of agreement is only the written word, not delivery---that is accepted. However, this document will optimise the opportunity for success. The national press in New Zealand has described the agreement as a 'landmark' and 'milestone', but it must stand the test of time after project approval.

Probably the most significant feature of the Kinleith heads of agreement is that it was not negotiated by the peak body of the union movement but the local union officials negotiating the fate of their membership by responsibly facing reality.

I sincerely believe this feature is 'a ray of light' and a message for us all.

Combined Construction Unions and

Bechtel Pacific Corporation Limited

Kinleith Modernisation Program---Heads of Agreement

In recognition of the need to satisfy the Board of Directors of NZ Forest Products Ltd that the Budget and Schedule objectives of the Modernisation Program will be supported by the combined construction unions and the workforce, Bechtel Pacific Corporation Ltd (Bechtel) and the combined construction unions signatory hereto, hereby expressly agree to the following matters to ensure that good industrial behaviour and improved work practices are achieved. To meet the common objective of good industrial behaviour all parties give their clear and unreserved commitment to ensure that all agreements reached are adhered to.

1. Application

This Heads of Agreement (Agreement) and Agreements subsequently reached will apply only to the Kinleith Modernisation Program and will not be used by any party as a precedent in respect of any other project.

2. Intent

Unions and Bechtel recognise that there were serious management and labour deficiencies in respect of the No 5 Recovery Boiler Project at Kinleith resulting in unacceptable overruns in both Schedule and Budget.

A repetition of such circumstances will lead to cessation of work on the Project and will jeopardise the future of the Kinleith Mill and of Tokoroa.

Unions and Bechtel therefore agree that this Agreement reflects the basic relationship on the Program and the mutual commitment to the satisfactory completion of the Project within Budget and Schedule.

Specific Agreements will be entered into between unions and Bechtel to support, implement and give effect to the principles contained in this Agreement.

3. Compliance

Unions and Bechtel shall mutually require compliance with this Agreement by their officers, employees, members, representatives and contractors and all other persons or organisations associated with the Project.

4. Communication

In recognition of the importance of communication in the achievement of satisfactory industrial relations, unions and Bechtel are committed to open and frank communication. In particular, each party to this Agreement shall operate on the basis of 'no surprises' in its activity in respect of the Project.

Unions and Bechtel expressly agree to reinstitute the Project Industrial Relations Roundtable as the principle official communication forum between them.

The Roundtable will be held as required, but no less than quarterly throughout the field construction phase of the Project, and shall be co-chaired by an elected senior construction union official and a senior representative of Bechtel.

To assist Representatives in attending these meetings the General Meeting dates will be set 12 months ahead.

A jointly agreed agenda will be distributed to all parties at least 7 days before the meeting. (This will not prohibit urgent matters being raised at the meeting.)

5. Policies

It is recognised that parties to this Agreement have various 'policies'; it is further recognised that these various policies may from time to time conflict.

Unions and Bechtel therefore agree that these policies meet in this Agreement, in the Project Site Agreement/s and in other Agreements which may be specifically negotiated, and, other than in project Work Rules to be established by Bechtel, not otherwise.

6. Management of Project Work

Unions and Bechtel agree that Bechtel shall manage and direct the Project in accordance with legal requirements; this Agreement and Agreements made subsequently to and/or arising from this Agreement; and otherwise in accordance with good construction practice.

Bechtel's contract with NZFP will involve responsibility for engineering procurement and construction management. It is not intended that any work will be performed by Bechtel on a direct hire basis, rather to manage the work of contractors.

Bechtel will act as manager and agent for NZFP in the administration of all contracts. Specifically, Bechtel will act as the sole and central point of contact for the contractors in the execution of the modernisation program.

This Heads of Agreement, the construction industrial agreements and other industrial regulations will be incorporated in all contracts and be strictly administered.

In relation to industrial relations Bechtel will be responsible, therefore will be 'in the driver's seat' acting for and on behalf of all contractors. However the contractors will be responsible for their own day by day domestic industrial relations but co-ordinated by Bechtel.

Bechtel shall be responsible for compliance by all contractors with matters negotiated and agreed between construction unions and Bechtel.

7. Work Practices

It is expressly agreed that work practices outside of 6 above will not be imposed, supported or condoned by any party to this Agreement. Unacceptable work practices initiated by the workforce will not be accepted or complied with by Bechtel or supported by unions.

8. Site Agreement

Unions and Bechtel agree to enter into a Site Agreement governing wages and conditions of employment of all manual construction personnel to be engaged on the project.

This Site Agreement shall alone determine all wages and conditions of employment for eligible personnel engaged on the project, with no recourse to any other Award or Agreement.

It is agreed that the Site Agreement will apply to all work which is contained in the Bechtel Scope of Work performed on the Kinleith job site.

A separate site agreement will apply to the operation of the construction village and the site construction take-away catering facility.

Employees transferred to the project by their employer shall have their non-project benefits 'frozen'; these benefits shall have no application on the project. (This provision may be qualified in respect of personnel engaged on the project either occasionally or for short periods.)

Other than in respect of 'set up' work which may be done under an interim arrangement, it is agreed that site construction activities shall not commence until the site agreement has been negotiated.

9. Project Work Rules

It is acknowledged that Bechtel will establish a set of project work rules, in consultation with construction unions, applicable to all involved in project work. These rules will be issued to new hires at time of employment and will form part of each employee's Contract of Employment.

10. Demarcation

It is agreed that demarcation disputes are unacceptable.

Unions and Bechtel agree that they will not promote demarcation issues and there will be no lost time, bans or limitations on work whatsoever in respect of demarcation issues because any such issues will be resolved by an agreed orderly process.

Bechtel agrees, whenever practicable to do so, to implement demarcation resolutions achieved within the union movement.

Unions acknowledge that Bechtel will, in the absence of acceptable resolution of demarcation issues from the union movement, direct the work in accordance with the industry clauses of National Awards.

11. Demarcation pre-Construction Resolution

Unions and Bechtel acknowledge that resolution of the following potential demarcation disputes is required prior to the commencement of field construction activities:

  • rigging
  • cladding
  • 'peggies' or 'teaboys'
  • boilermaking/welding

It is acknowledged that Bechtel will implement the following processes to achieve resolution of these potential disputes.

    i The unions concerned shall meet to reach agreement in respect of demarcation on the project, or

    ii Other processes within the Union movement,


    iii If no acceptable resolution is achieved in a timely manner Bechtel shall convene a meeting with the unions involved to reach an Agreement, or

    iv If an acceptable resolution is not achieved in a timely manner, Bechtel may implement proceedings pursuant to the Labour Regulations Act 1987.

Parties to this Agreement acknowledge that field construction work will not commence unless and until acceptable resolution of the above issues is achieved.

12. Vendor Selection

It is acknowledged that Bechtel will select experienced and competent vendors to engage in supply and pre-fabrication work, regardless of geographic base and current areas of operation.

13. Contractor Selection

It is acknowledged that Bechtel will select experienced and competent construction contractors to engage in project work, regardless of geographic base and current areas of operation.

All things being equal, New Zealand Vendors and Contractors will have preference for work.

14. Contractor's Employment Facility

It is agreed that Bechtel will staff and operate a Project Contractor's Employment Facility (CEF) in Tokoroa which will be the sole source of labour to the project.

All persons seeking employment on the Project shall apply to the CEF, and contractors seeking to engage labour shall select candidates for interview from applications held by the CEF. The CEF will ensure candidates are advised of the results of interviews, and that successful applicants receive Site Agreement entitlements and are members of the appropriate Union, and are issued with photo I.D. Badge. Union officials will have access to the CEF and its functions.

15. Employment

It is acknowledged that Bechtel will require contractors to employ experienced and competent labour for the execution of the work. Labour will not be recruited from outside New Zealand without the prior agreement of the union/s concerned.

16. Construction Village

In recognition of 15 above, Bechtel shall supply and operate a Construction Village to provide, free of charge, accommodation and meals to eligible personnel whose usual place of residence is an agreed distance outside of the bussing area. There will be no alternative arrangements entered into by either party. Residents of the Village shall be required to adhere to Village Rules established by Bechtel and the Combined Unions.

17. Clothing

It is agreed that Bechtel will supply clothing strictly in accordance with the Site Agreement.

18. Transportation

It is agreed that Bechtel will supply transportation to construction personnel within a 'bussing area' to be agreed.

19. Dispute Resolution

Unions and Bechtel agree to enter into a Dispute Resolution Process similar to that which operated on the No 5 Recovery Boiler Project, which ensures the continuity of work.

It is accepted that failure by workers to comply with the requirements of this process may jeopardise their employment on the Project.

20. Construction Equipment

It is acknowledged that contractors will utilise construction equipment (eg: scissor lifts, cherry pickers, JLG's etc.). Their use will be in accordance with guidelines to be agreed between Bechtel and construction unions.

21. Definition of Construction Work

Due to the sensitivities associated with constructing within an operating mill, unions and Bechtel agree that:

  • 'Construction Work' is defined as work under Bechtel Scope of Work on the Kinleith Mill Site.
  • This Agreement and the negotiated Site Agreement shall apply in respect of Work as defined above.
  • In the event of any dispute in respect of the allocation of work between construction and production/maintenance, the determining factor shall be Bechtel Scope of Work.

Dated at of...........................................................1988.

Signed for and on behalf of:

  • The Auckland District Boilermakers, Structural Metal Fabricators and Assemblers Metal Ship and Bridge Builders, Industrial Union of Workers.
  • The New Zealand Labourers, General Workers and Related Trades Industrial Union of Workers (Northern Branch)
  • The New Zealand Building Workers' Union
  • The Northern Clerical Administrative and Related Workers Industrial Union of Workers
  • The Northern Caretakers, Cleaners, Lift Attendants and Watchmen's Industrial Union of Workers
  • The Northern Hotel, Hospital, Restaurant and Related Trades Industrial Union of Workers
  • The Northern Distribution Workers Union (Driving Division)
  • The New Zealand (except Canterbury and Westland) Electrical, Electronics and related Trades Industrial Union of Workers
  • The New Zealand Amalgamated Engineering and Related Trades Industrial Union of Workers
  • The New Zealand (except Hawkes Bay and Wanganui, Westland and Otago and Southland Districts Painters and Decorators, Glaziers and Signwriters Industrial Union of Workers
  • The New Zealand Plumbers, Gasfitters and Related Trades Industrial Union of Workers
  • The Northern Distribution Workers Union (Stores Division)
  • Bechtel Pacific Corporation Limited