Wednesday, 16 March 2016

Australian Construction Industry Inquiries



Three Royal Commissions in 25 Years


Following reports from the ABC and Fairfax media groups in 2012-13 on corrupt and illegal activity in several Australian trade unions, in particular the Construction Forestry Mining and Energy Union (CFMEU), the Health Services Union (HSU) and the Australian Workers Union (AWU), a Royal Commission was appointed in 2014 to inquire into trade union finances and activities. While the terms of reference covered a range of issues around union corruption, the CFMEU was the catalyst and provided justification for the inquiry. Over half the Commission’s hearings were on the CFMEU, the behaviour and associates of certain union officials, and payments or other deals made with employers in NSW, Victoria and Western Australia.

The Royal Commission into Trade Union Governance and Corruption was headed by a former High Court Justice, Dyson Heydon, and found evidence of blackmail, theft, intimidation and death threats, use of motorcycle gangs and other criminal groups as hired muscle, interference in union elections and illegal agreements with employers. The Final Report highlighted poor union record keeping, false invoicing and destruction of documents, union ‘rubber stamp’ committees which failed to enforce rules, payment of large sums by employers to unions for dubious ‘training’ schemes and ‘services’, and influence peddling in the Labor Party through inflation of union membership figures. The sums of money involved were also significant, with many officials benefiting from their positions through fraud or theft from the union (HSU in particular), or in the CFMEU through arrangements with employers for work on properties owned by officials.

Based on that evidence around 50 people, unions and companies were referred to various authorities for possible prosecution, including police and public prosecutors, the Australian Securities and Investments Commission (ASIC) and the Fair Work Commission. Some of the large private companies caught up in the inquiry were Thiess, John Holland, ACI, Downer EDI, Cbus, Winslow Constructors and Mirvac. Companies were found to have made payments to unions to get onto tender lists

The Final Report, released in December 2015, had 79 recommendations, over half concerned with the regulation of unions (24) and union officials (14). The first recommendation was “Commonwealth and State governments give consideration to adopting a national approach to the registration, deregistration and regulation of employee and employer organisations, with a single regulator overseeing all such organisations throughout Australia.” This Registered Organisations Commission would have investigative powers similar to ASIC, and focus on financial compliance with new rules on management and disclosure. Other recommendations were for significant changes to industrial relations laws, to restrict union privileges, and Federal competition laws on price-fixing and bid rigging.

Although the Royal Commission reported “widespread and deep-seated misconduct” across a number of unions throughout Australia, Commissioner Heydon said the Royal Commission had uncovered only “a small tip of an enormous iceberg”. There was also a confidential sixth volume because “a large volume of evidence cannot be publicly released due to serious threats made to certain witnesses and their families” and “reveals grave threats to the power and authority of the Australian state.”

Heydon’s most important recommendation was for the reestablishment of the Australian Building and Construction Commission (ABCC) as an independent industry regulator “For the purpose of seeking to combat the culture of disregard for the law within the Construction, Forestry, Mining and Energy Union”. Originally set up after the 2003 Cole Commission recommended widespread changes to the industry’s industrial relations laws, legislation establishing the ABCC as a statutory authority to monitor workplace relations was passed by the Howard Government in 2005. The ABCC was deeply opposed by the unions and in July 2012 was replaced by the Gillard government by the Fair Work Building and Construction Inspectorate, a body with much reduced scope and powers.

Before the Heydon Royal Commission there were two previous Royal Commissions into the building and construction industry, both headed by judges. Roger Gyles headed the Royal Commission into Productivity in the Building Industry in NSW (1991-1992) and Terence Cole the Royal Commission into the Building and Construction Industry for the Commonwealth Government (2001-03). At this time it is worth revisiting the findings and outcomes of those inquiries.

Both concluded the fundamental problem was a lack of respect for the rule of law, a phrase found repeatedly throughout both final reports, and this was a problem on both the employer and union sides. Cole said Culturally, first, there needs to be recognition by all participants that the rule of law applies within the industry” and Gyles suggested those who break the law should be punished.

Gyles also said “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 to kill your own … 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.”

Gyles found illegal activities “…range from physical violence and a threat of physical violence at one end to petty pilfering of building materials at the other. In between there is a great variety of illegal activities, essentially economic in nature or effect, from collusive arrangements involving giant corporations and industry associations to labour-only sub contractors paying small amounts of graft to project managers. Those involved range from managing directors of large corporations to labourers on site. No sector of the industry has been immune.”

Nevertheless, Commissioner Gyles concluded that industrial relations was overwhelmingly the most important issue and the union’s conduct and philosophy the fundamental cause of the industry's problems. He recommended the government deregister the BWIU (now the CFMEU) in both the State and Federal jurisdictions, and his Commission’s Building Industry Task Force pursue cases and recommend changes to the law. Gyles made 63 recommendations to the NSW Government, of which all but two were adopted.

Following Gyles came the NSW Code of Practice for the Construction Industry (1996), then the Commonwealth, State and Territory governments through the Australian Procurement and Construction Council (APCC) introduced a National Code of Practice for the Construction Industry (1997). Many codes and guidelines have been issued and revised at both levels of government over the last decade. Victoria, NSW and Queensland all have similar Codes of Conduct and Guidelines, and all three States have used, or made attempts to use, their role as major clients to enforce compliance with legal obligations. Policy interest in this area escalated significantly after 2003 when the Cole Royal Commission reported.

Ten years after Gyles the same problems were still prevalent. In his final report Commissioner Cole envisaged an industry where … disputes are resolved in accordance with legislated or agreed dispute resolution mechanisms rather than by the application of industrial and commercial pressure. The rule of the law must replace industrial might.”

Cole found a disregard for enterprise bargaining, unlawful strikes and use of inappropriate payments. As a result 31 individuals were referred for possible prosecution, 392 instances of unlawful conduct were found (including 30 by employers), and 25 different types of unlawful conduct and 90 types of inappropriate conduct identified.

His view was “These findings demonstrate an industry which departs from the standards of commercial and industrial conduct exhibited in the rest of the Australian economy. They mark the industry as singular. They indicate an urgent need for structural and cultural reform. At the heart of the findings is lawlessness. It is exhibited in many ways.”

The final report had 212 recommendations, the great majority about changes to federal workplace relations legislation governing the building and construction industry and proposed an Australian Building and Construction Commission (ABCC) to monitor illegal behaviour by unions. While the ABCC clearly had a restraining influence on the industry in general and the CFMEU in particular it obviously did not fundamentally alter “standards of commercial and industrial conduct”.

It is worth asking if the recommendations of the Gyles and Cole Commissions, the other State efforts and the APCC codes, had all been implemented and followed through, would a third Royal Commission have been necessary? However, that would have been an expensive exercise, due to the cost of closely monitoring projects and adding resources for enforcement of existing laws to the relevant agencies. Also, The Heydon Royal Commission had a much wider remit than the building and construction industry, finding "It is clear that in many parts of the world constituted by Australian trade union officials, there is room for louts, thugs, bullies, thieves, perjurers, those who threaten violence, errant fiduciaries and organisers of boycotts."

While the recommendations from Gyles and Cole did become legislation, and Heydon’s may yet, perhaps the real underlying issue that should be addressed is why the building and construction industry operates the way it does. None of these Royal Commissions produced a vision of a different industry, apart from a law abiding one, and made no recommendations on the direction that strategic development of the industry might take.

Commissioner Gyles acknowledged the complexity of the industry: “the issues thrown up … have been manifold. Some have been controversial ... some are complex or technical ... In relation to some issues, I have fairly well developed and precise views as to what ought to happen. In relation to other issues, I … leave them to the government or interested parties to follow through, or make suggestions as to procedure by which they ought to be resolved.”

The three Commissioners agreed the problem is a culture of lawlessness, and the three inquiries found widespread illegal behaviour by both union officials and contractor managers. Their recommendations, in various ways, focused on increased regulation and enforcement through legislative action. In this they had “well developed and precise views”. However, while necessary, increased regulation does not address the issue of why the building and construction industry has such a culture. What are the causal factors at work in creating this culture? How might they be affected by industry practices and institutions in areas like recruitment and training, tendering and procurement, wage setting and tripartite agreements between unions, employers and government?

Construction has a reputation for corruption and collusion, and is ranked by Transparency International as the world’s most corrupt industry, mainly due to issues in developing countries. But this is also a problem across countries in the OECD, not just for Australia, because many countries have found entrenched anti-competitive practices and criminal involvement in the industry. For example, the recent Charbonneau Commission in Canada into awarding of public contracts in Montreal concluded corruption and collusion are "far more widespread than originally believed" and organised crime had “infiltrated” the industry.

Industry policy and industrial strategies are very much out of fashion in Australia and elsewhere these days. In their absence we get quasi-judicial agencies and an emphasis on law enforcement and industrial relations. It is unlikely these agencies will ever get the resources needed to cover an industry as large and diverse as building and construction, thus it is unlikely that the issues of criminality and illegal behaviour can be solved by increased regulation alone.