The significance of Turnbull’s Senate masterstroke

Greens Leader Senator Richard Di Natale in the Senate Chamber at Parliament House in Canberra.

What’s happening in the Senate is going to change the nation and the business community far more than most imagine.

So, while politics is not my regular bag, what’s going on in the Senate this week is so important it requires an alert for business readers.

First and foremost, we are going to discover how clever our Prime Minister is at playing the political game. I suspect he is going to surprise us on the upside.

But we are also very close to cutting the cost of much of Australian infrastructure by about 25 per cent and I suspect there will be no double dissolution because there will be no reason to have one.

First, it’s important to eliminate a mistaken view about the future of independents in the Senate. In the US we have seen how the hollowing out of the middle class has affected politics via Trump and Sanders. (The Trump card could be played here too, March 3)

In Australia, it means that whatever voting system is used for the Senate there is going to be a crop of cross benchers, it’s just that, with one or two exceptions, they will be different from the current crop. It is likely that Jacqui Lambie from Tasmania and Nick Xenophon in South Australia will be re-elected, but the rest are one-term wonders.

So, when it comes to the vote on any legislation that could trigger a double dissolution — in this case it’s the restoration of the Australian Building and Construction Commission — the cross benchers have the choice of six months more in power or up to four years. Guess what they will choose.

We all saw the magnificent work the cross benchers did on the unfair contracts legislation and, this week, we are watching them make the government look duplicitous. The cross benchers now understand the political game and how to do deals. While my assessment of likely personal behaviour could be wrong, they are highly likely to pass the ABCC legislation.

And that would be full marks to Malcolm Turnbull, who has made everyone believe a double dissolution was inevitable.

The cross benchers would have passed the ABCC legislation when it was presented the first time but one of their number did not vote. Unconfirmed reports say that Clive Palmer had a role.

At the time, Palmer wanted the building unions to get the Queensland government to help Palmer’s Queensland nickel operation. Stopping the ABCC legislation seemed a way to the building unions’ heart.

The legislation was lost by one vote. This time around Clive will play no role.

Currently, cross benchers like Bob Day and Ricky Muir are having a ball taunting the government by highlighting the grubby deal the Greens have done with the government. The Greens will be damaged — another win for Turnbull.

Turnbull will tag a building code enforced by the ABCC to all Commonwealth backed infrastructure, thereby slashing outlays. Grace Collier in the Weekend Australian explains how it will work (ABCC quest driven by misconceptions, March 12)

“The essential task of the ABCC is to enforce a government anti-corruption agenda, which will be condensed into a written code of conduct. The code will not apply to unions; it will be binding only on the companies engaged to build publicly funded infrastructure. If the code is breached, the company will be banned from receiving any government work.

The code is designed to change the pricing conduct of tier-one builders, which means the giant contract management firms. Before a construction project starts, these tier-one players call for tenders from the smaller construction companies that will do the actual building.

These smaller companies, referred to as tier-two or tier-three firms, tender for the work. If successful, they are engaged to complete their part of the project, using the specialist tradespeople they employ. For example, an earthworks company will dig the ground, a concrete company will lay the foundations, a scaffolding company will build the scaffolding, and so on.

Before any project starts, the tier-one firm will sign a contract with the unions that sets out the wages and conditions that tier-two and three firms will be obliged to pay their staff while working on the project. These contracts are incredibly detailed; often the date of every rostered day off is marked out on a calendar.

The contract is distributed and tier-two and three firms are told to price the cost of the new wages and conditions into their tender bids. This is what bumps the costs of building up by as much as 30 per cent.

Tier-one firms give the unions the names of the tier-two and three companies that tender. This is what leads to union visits, demands for “relationships” and other inducements, in return for entry to the project.

This system works for the tier-one firms in many ways. The profit margin of a tier-one might be fixed at 2 per cent of total project cost. The higher the project cost, the bigger the profit. The client will pay, and everybody can point the finger of blame at the dreadful unions. The unions don’t care, and aren’t about to set the record straight.

Further, because a tier-one company sets the price it will pay a subcontractor as well as dictates the subcontractor’s labour costs, it gains intimate knowledge of subcontractor profit margins and therefore the ability to manipulate and punish those who displease it. This power leads to abuse. The tier-one players have a reputation for shafting subcontractors and destroying lives in the process.

Most of the shonky behaviour that makes our construction industry notorious is the consequence of decisions taken in tier-one boardrooms.

If the tier-one firms stopped forcing every smaller company they engage with to bump up its prices in accordance with union contracts, productivity would rise and prices could drop by 30 per cent.

This change to pricing conduct is what the code seeks to achieve, and the ABCC is tasked with ensuring compliance”.

Thank you Grace. That’s a magnificent explanation of how it works.