This is an edited version of an address to the HR Nicholls Society XXXIV Conference in Brisbane on 17 May 2014 by Roger Gyles AO QC:
1988 was the year of the Bi-Centennial. Nick Greiner was elected Premier of New South Wales. The building industry rorts during construction of the Darling Harbour project were fresh in the public mind. Nick Greiner received many complaints that New South Wales building costs were too high compared with the other States, particularly Victoria, and concluded that New South Wales was losing business as a result. That was the catalyst for my appointment as Royal Commissioner into Productivity in the New South Wales Building Industry in 1990.
Published material from quantity surveyors bore out the fact that New South Wales building costs for major projects were greater than those in the other States. The Commission looked closely at the situation in Queensland. The published material showed that Queensland building costs were 90% of New South Wales’ costs in 1983 and 74% in 1991. The Commission studies confirmed that from 1983 onwards non-residential building costs in Sydney were significantly higher than Brisbane and the gap continued to widen. The difference in cost was not reflected in cottage building or civil construction. There was virtually no union involvement in cottage building and no Building Workers Industrial Union (BWIU) involvement in civil construction. It was concluded that the difference lay in labour costs, principally due to lost time caused by adverse industrial relations conditions in New South Wales compared with Queensland. This in turn was due to a difference in attitude of the two unionised workforces resulting from the different approaches which the building trade union organisers and officials took in the two States.Even more striking was the difference between the cos of building a convention centre in the Darling Harbour complex on the one hand with a similar convention centre in Austin, Texas. The Sydney Convention Centre was 32,000m2 in area; the contract amount was $85 million and the final cost was $195 million. The Austin centre was 37,000m2 in area; the contract amount was $58 million and the final cost was $58 million.
The evidence showed that industrial anarchy was rampant. Restrictive work practices and demands for concessions in relation to pay and other conditions with little or no regard for awards or industrial law were negotiated with major building contractors and then ruthlessly imposed upon subcontractors and smaller contractors with the BWIU acting as enforcer. Boycotts, including secondary boycotts, were rife, with no action from the then Trade Practices Commission (nothing much seems to have changed in that respect).
Much illegal behaviour was deteed. The headings of the final report of the Commission in this respect included the following: Physical violence and intimidation; Corrupt commissions ;improper and irregular payments; Fraudulent conduct; Theft; Extortion; Engagement of reputed professional criminals. That kind of illegal conduct was by no means the sole province of the unions. Furthermore, a number of major contractors were found to have engaged in systematic collusive tendering.
Bankruptcies of contractors and subcontractors were common with the principals often recommencing business through another entity, leaving debts in their wake, uninhibited by action by the authorities.
Union campaigns for Construction Employee Redundancy Trust (CERT) payments and top-up insurance (payment of premiums by employers for greater payments for injury than the law then allowed) are instructive in the light of the allegations about union finances which have surfaced over recent years. CERT was a trust established by the Australian Federation of Construction Contractors (AFCC) and the BWIU administered by a subsidiary of the AMP Society to receive a weekly amount per worker from contractors and subcontractors to be held to reimburse employers paying redundancy benefits and for discretionary payments for the benefit of the building industry. During the period of the Commission the amount per worker rose to $41.50 per week. The enforcement of CERT was bitterly opposed by most contractors and subcontractors but was successfully forced upon many of them because of union pressure. Although not established until July 1989, by 30 June 1991 it held net assets of over $48 million with net income available for distribution of over $6 million – well in excess of redundancy payments. There were serious questions about the legal effect of the arrangements. The opportunities for patronage, power and corruption from such volume of funds available for discretionary distribution were obvious.
The campaign for CERT often went hand-in-hand with a campaign for top-up insurance following changes made to State legislation to limit recovery of damages for injury in certain respects. In this case, builders and subcontractors were to enter into arrangements with a nominated exclusive insurance company to pay an amount as a premium for top-up insurance for injured workers. Again, the scheme was agreed between the BWIU and a number of major contractors, and then enforced upon most of the industry who opposed it. The BWIU received substantial commissions from the exclusive insurer as a result of the arrangement which were not disclosed to those paying the so-called premiums or to the members.
How is it that the building unions were able to bring the major contractors to heel and then together force smaller contractors and subcontractors to succumb to the agreed union demands? This was a particularly striking result as, in commercial building, the head contractor subcontracts virtually all of the actual work on the site, and employs only a very small proportion of workers on the site.
The principal reason is that clients and their financiers value certainty over other factors. Delays in completion are to be avoided. Time is money. Clients are prepared to pay an elevated but certain price, rather than risk delays and consequent losses. A client wishing to construct a significant commercial project cannot avoid using contractors with a unionised workforce. Although pre-fabrication has its place, significant commercial buildings cannot be imported. Therefore, the threat of industrial disruption is powerful. Public clients, which might have been expected to take a stand to protect public revenue, were quiescent.
The major contractors are in a similar position. They will often have contracts which penalise time overruns and are either fixed price or with limited ability to vary the price. Thus, industrial mayhem on a job would have serious financial consequences. Furthermore, a head contractor’s principal concern is to ensure that its cost of labour does not exceed that of competitors. There is thus a strong motivation to have a level playing field with all of the competitors having a broadly similar cost of labour. Indeed, as the industry is in essence cost plus, adding a percentage to a higher figure to arrive at a price is of no disadvantage to the contractor. The role of the building unions in this structure is to ensure that none of the serious head contractors breaks rank by attempting to use non-union labour or by resisting union demands.
The Commission looked at many aspects of the industry and a number of recommendations were made. However, the key recommendations were, in substance:
1. The restoration of law and order by the establishment of a Building Industry Task Force consisting of police, lawyers and analysts to exercise and coordinate the exercise of civil, criminal and industrial remedies. In addition to enforcement of the law, such a task force was particularly designed to assist smaller contractors and subcontractors by giving them a body to receive and deal with complaints about intimidation.
2. A coordinated use of the public purse to ensure that industrial blackmail did not take place on public projects or on projects funded with taxpayers’ money, particularly by instituting and enforcing effective codes of conduct. In other words, “not on our projects” for industrial blackmail.
3. An application to deregister the BWIU (New South Wales Branch).
Recommendations 1 and 2 were adopted and put into effect. That (together with the implementation of a number of other recommendations) led to a drop in the premium between New South Wales building costs and costs in other States. The Building Industry Task Force was disbanded after the Carr Labor Government came to office in 1995. Whilst the codes of conduct continued, their content was softened.
The recommendation to apply to deregister the BWIU (NSW Branch) was not adopted. It is possible that that was affected by the resignation of Nick Greiner as Premier in June 1992, not long after the report of the Royal Commission was delivered. I believe that the failure to act on that recommendation was a serious mistake as things stood in 1992. All that has happened since confirms me in that opinion. It is apparent from the findings of the Commonwealth (Cole) Royal Commission and from numerous court judgments in the Federal Court and the Supreme Courts of Victoria and Western Australia that the industrial lawlessness and anarchy, which marked the industry in New South Wales up to 1992, continued or returned in most parts of Australia, but particularly Victoria and Western Australia. I could not see then, and cannot see now, why an organisation which exhibits contempt for industrial law and the general law of the land should enjoy the statutory privileges of registration. Other unions would have been quick to pick up coverage. Indeed, it is difficult to see why there should be exclusive coverage. If deregistration were to be avoided, it would surely have been upon terms that ensured that the individuals responsible for the lawless conduct of the union should have no continuing role and that whatever steps needed to be taken to change the culture would be taken as a condition of continuing registration. The Builders Labourers Federation (BLF) had been successfully deregistered by 1986, and the BWIU at its worst did not approach the conduct of the BLF.
There appears to be little essential change in the structure of the industry and the conduct of the participants in it since 1992. The Cole Commission and its aftermath provided a respite by reason of measures including government codes of conduct and the establishment of the Office of the Australian Building and Construction Commission(ABCC). That body had the advantage of compulsory powers but the disadvantage of having no criminal jurisdiction. Those measures were substantially reversed by the Federal Labor Government, allied with other union-friendly legislative amendments. The Fair Work Building and Construction is not equipped to adequately handle the situation notwithstanding the best efforts of the incumbent.
Links with bikie gangs are new, but professional criminals were involved in the industry in various ways in the late ’80s and early ’90s. The alleged link between the gangs and senior union officials is concerning. It is significant that these,and other, allegations of corruption are made by internal union whistle blowers in Victoria, New South Wales and Queensland. That provides a great advantage in the examination of union governance in the building industry which the New South Wales Royal Commission did not have and which, I believe, the Cole Commission did not have.
Given the difficulty in reinstating the ABCC, and given the limitation of its jurisdiction, an obvious step to be taken forthwith would be to constitute a joint Federal-State Building Industry Task Force along the lines of the previous New South Wales body. No legislation would be required and it could start operations without delay with the benefit of a criminal jurisdiction.
I was delighted to hear today that there has been good progress towards introducing more effective Federal-State codes of conduct. That is another powerful step that can be taken without legislation.
Overall,I might be pardoned for having a sense of back to the furure.
Roger Gyles is a former justice of the NSW Supreme Court, and headed the Royal Commission into Productivity in the Building Industry in NSW which reported in 1992.