ABCC quest driven by misconceptions

Tier one builders lay down the rules, including labour payscales, for subcontractors.

The proposed Australian Building and Construction Commission seems to be at the centre of a political storm. I am not here to stick up for Labor and the unions, or create embarrassment for the Coalition and the business groups, but at some point in this absurd debacle someone has to stand up, tell the truth and offer an alternative solution.

In January, Master Builders Australia chief executive Wilhelm Harnisch said: “Without the ABCC acting as the strong cop on the beat, the building unions will continue to cheat the community out of more schools, hospitals and childcare centres by driving up the cost of construction by as much as 30 per cent.”

This statement is inaccurate and misleading. The reason we are cheated out of “more schools, hospitals and childcare centres” is because Australia’s biggest building companies are cheating us to maximise profits.

Master Builders cannot say this because it would be accusing its membership. The unions are key players in, and beneficiaries of, corruption, but the root cause of our problems lies in the policies of key construction businesses, and the ABCC is intended to force some changes.

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, the tier one calls 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 ones give the unions the names of the tier twos and threes 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 ones 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 sets the price it will pay a subcontractor as well as dictate 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 ones 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 ones stopped forcing every smaller company they engage 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. Yes, the ABCC is a watchdog, but its job is not to bite the unions: its job is to stand guard over precious government funds.

Finally, if the ABCC never eventuates, it might not matter all that much. There might be a better solution with a broader application across our entire economy. All the corporate behaviour described above should be illegal, but isn’t. It could be expressly prohibited in an amended Corporations Act, with significant fines or jail time for offenders. This would solve problems in other sectors, including but not limited to mining, transport and maritime.

Although the construction area gives us a lot of colour and movement, it is not the only sector in which organised corruption is deeply implanted into corporate practices.