SUBMISSION TO THE SENATE STANDING COMMITTEE
ON EDUCATION AND EMPLOYMENT
INQUIRY INTO FAIR WORK AMENDMENT (CORRUPTING BENEFITS) BILL 2017
Introduction
The Final Report of the Royal Commission into Trade Union Governance and Corruption by Justice
Dyson Heydon 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 or through arrangements with employers for work on properties owned
by officials.
Based on
that evidence over 40 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.
This submission supports the proposed amendments to
legislation by the Australian Government on registered organisations.
Background
Before the
Heydon Royal Commission there were two previous Royal Commissions into the
building and construction industry, both also led 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).
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 subcontractors 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.”
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.”
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 proposed an Australian Building and Construction
Commission to monitor illegal behaviour by unions.
It is worth asking
if the recommendations of the Gyles and Cole Commissions, the other State
efforts and their codes of conduct, had all been implemented and followed through,
would a third Royal Commission have been necessary? While the recommendations from
Gyles and Cole did become legislation, and Heydon’s are in process, 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.
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 and the
causal factors at work in creating this culture.
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 2015 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
. The Commission revealed complex webs of collusion with
sophisticated mechanisms’ for extracting funds from public construction
projects. Politicians, high level public officials, consultants, and
contractors were all involved.
Project
Preparation and Procurement
The current
approach to procurement of building and construction projects by both public
and private clients facilitates corrupt payments by allowing the increase in
project costs they cause to be hidden in tender bid prices or claims for
reimbursement. This is primarily due to clients’ under-investing in project
preparation in the initiation phase, as they seek to minimise the design costs of a feasibility
study. Because many projects
are then put to tender with incomplete documentation, their cost cannot be
estimated accurately and tenderers have to add a significant risk premium to
their bids.
Project costs cannot be accurately
estimated without detailed design and engineering specifications, and high cost
estimates allow the later diversion of funds. On the other hand, incomplete
design can lead to estimates below project costs, with consequent claims and
disputes obscuring the eventual recipients of funds. Contractors’ claims for
reimbursement can lead to significant cost increases, and an unscrupulous
contractor will also cheat on materials, compromise on quality, and deliver
below the specification, resulting in poor quality assets with high maintenance
costs.
Failures
in project preparation opens up opportunities for corruption during the later
stages of a project. For example, inadequate project preparation may lead to
subsequent implementation delays and work changes that can be manipulated to
benefit individuals or companies. The preparation stage is likely to facilitate
corruption during construction when failures at this stage are opportunistic or
deliberate. Incomplete design inevitably requires adjustments after the work
has started, although many are due to unexpected events and circumstances.
However, starting without a complete plan opens the door to post-contract
negotiation and opportunistic behaviour.
To improve project preparation both public and
private sector clients would have to take more
responsibility for project initiation and definition, and employ
larger and more capable client teams to manage their projects’
procurement and delivery strategies.
The
cost of a client project management team is not an added extra to the project, and
the task is essential if the scope for collusive and corrupt behaviour in the
building and construction industry is to be reduced.
