Friday, 19 July 2024

The CFMEU, Allegations of Illegal Activity, and Three Royal Commissions

Will this time be different?


 


For many people in the Australian construction industry the allegations of illegal activity, criminal links and general thuggery against union organiser John Setka and the Construction Forestry Mining and Energy Union (CFMEU) will not have come as a surprise. Although it has been widely known for many years that there was a problem, the investigation by the Nine newspapers and 60 Minutes has publicly revealed the extent of the problem and gathered the evidence needed to take action against the union. 

 

The Albanese Government is going to place the CFMEU under external administration, which avoids the problem with deregistration where the union continues to operate with the existing leadership but outside the industrial relations system. That was what happened in 1986 when the Hawke Government deregistered the militant Builders Labourers Federation (BLF) after evidence of criminal and corrupt activity became public. BLF secretary Norm Gallagher was found guilty of receiving secret commissions and building materials from building contractors and sentenced to 18 months jail in 1986. Many BLF members then joined the Building Workers Industrial Union (BWIU) which in 1992 became the CFMEU, and BLF organiser John Setka became Victorian state secretary. 

 

We have been here before. Following media reports in 2012-13 on corrupt and illegal activity in the CFMEU and other trade unions, a Royal Commission headed by Dyson Heydon was appointed in 2014. Over half the Commission’s hearings were on the CFMEU, the behaviour and associates of union officials, and payments or other deals made with employers in NSW, Victoria and Western Australia. The Royal Commission reported ‘widespread and deep-seated misconduct’ across a number of unions throughout Australia, however Commissioner Heydon said the inquiry had uncovered only ‘a small tip of an enormous iceberg.’ 

 

Before the Heydon Royal Commission there had been two previous Royal Commissions into the building and construction industry, both also 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). Both concluded the fundamental problem was a lack of respect for the rule of law, a phrase found repeatedly throughout their 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. 


At this time it is worth revisiting the findings and outcomes of the three Royal Commissions, which is what this post does, starting with the most recent Heydon Royal Commission, which a decade ago found evidence of the CFMEU’s close relationship with motorcycle gangs and criminal groups.


 

The Heydon Royal Commission 2014-15

 

Following reports from the ABC and Fairfax media group (now Nine Entertainment) in 2012-13 on corrupt and illegal activity in several Australian trade unions, in particular the 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 former High Court Justice Dyson Heydon, who 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. In his view ‘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.’ 

 

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, with 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, 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.’

 

An 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 opposed by the CFMEU and the ACTU, and in July 2012 the Gillard Government replaced it with the Fair Work Building and Construction Inspectorate, a body with reduced scope and powers. In 2016 the ABCC was reestablished by the Turnbull Government, then in 2022 the Albanese Government transferred its responsibilities to the Fair Work Ombudsman and in 2023 abolished the ABCC for a second time. According to the Australian Financial Review  the Fair Work Ombudsman was ‘handling 35 court cases against the CFMEU, including six appeals,’ after the ABCC transferred 40 remaining matters to the agency in 2023. 

 

The cases brought against the CFMEU by the ABCC were mostly about illegal pickets, intimidation and abuse, and coercing companies to accept union agreements, all industrial relations issues. These cases typically resulted in over $16 million in fines between 2016 and 2022 that were easily paid by the CFMEU, which in 2024 had net assets of $106 million.  Over both periods of the ABCC’s existence there were no cases involving association with people with criminal records, and there were no reports of any advice to the ABCC from the state and federal police forces responsible for monitoring the activity of bikie gangs. 

 

Before the Heydon Royal Commission there had been 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 and Terence Cole the Royal Commission into the Building and Construction Industry for the Commonwealth Government.

 

 

The Gyles Royal Commission 1990-92

 

In the 1980s, industrial warfare made construction sites a battleground because of the intense rivalry between the Builders' Labourers Federation (BLF) and the Building Workers Industrial Union (BWIU, now the CFMEU). In July 1990 the New South Wales Premier Nick Greiner appointed Roger Gyles QC to head the Royal Commission into Productivity in the Building Industry in NSW (RCBI), after spectacular cost overruns from union disputes on major projects associated with the bicentennial in 1988, such as the Convention Centre at Darling Harbour and the Dowling Street Courts, among others. The deadline for the Royal Commission was extended three times after September 1991, before the Final Report was released in May 1992. An enormous amount of material was compiled by the RCBI, the Final Report’s 62 recommendations are in Volume 7 of a 10 volume report that is over 5,000 pages long.  

 

The RCBI had a substantial staff. A Building Industry Task Force to investigate breaches of the law and commence legal proceedings was headed by a Crown Prosecutor and staffed by lawyers, law enforcement officers and expert advisers from the industry. Thirty policy and research analysts were responsible for producing the discussion papers the RCBI issued. There were three volumes of appendices with data and analysis in the Final report, with detailed case studies of 20 major projects, industry surveys of contractors, subcontractors and suppliers, and background papers on a range of topics including insolvency, partnering between contractors and clients, and industry characteristics. 

 

A Second Commissioner, Kevin Holland QC, was appointed to conduct hearings on tendering practices which revealed bid rigging, payment to industry organisations of special fees by successful tenderers, and unsuccessful tender fees paid to the other tenderers providing cover bids. This collusive behaviour by contractors acting as cartel was (as is) illegal and was facilitated by their industry associations. Holland’s inquiry resulted in repayment by contractors to the NSW Government of some of the inflated costs of public projects. The major contractors representative association, the Australian Federation of Construction Contractors was closed down (to be later reborn as the Australian Contractors Association) and Gyles recommended to the government that advice be sought on whether the Master Builders' Association of New South Wales should be deregistered as an industrial organisation.

 

Hearings before Gyles on the behaviour of unions and some union officials revealed practices beyond the rights of unions on behalf of their members. 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.’

 

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 did acknowledge 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.’

 

Nevertheless, Gyles concluded industrial relations were overwhelmingly the most important issue, and the union’s conduct and philosophy the fundamental cause of the industry's problems. He recommended deregistration of the BWIU in both the State and Federal jurisdictions, and that the Commission’s Building Industry Task Force pursue cases and recommend changes to the law. The Final Report found:

 

the conduct of the members and officials of the former BWIU (NSW branch) very severely affect productivity and efficiency of the industry in this State, both because of the persistent disruption of projects and businesses and because of the restrictive work practices instituted and defended whilst work is actually proceeding (p.5).

 

In all, Gyles made 62 recommendations to the NSW Government, of which all but two were adopted. The Commission’s report recognised the structure of government departments and authorities makes implementation of many of its recommendations difficult. Gyles recommended the government should take the lead in a client-led process of reform, and a NSW Ministry of Construction should be set up, with the role of developing a code of conduct and procedure appropriate for each form of project delivery. In 1991, the NSW Legislative Council's Standing Committee on State Development had also recommended that a Ministry of Construction be established to plan capital works, help departments to improve their capital works management skills, check projects in order to improve cost effectiveness and issue guidelines for all public sector capital works projects. 

To implement the RCBI’s recommendations a Construction Policy Steering Committee (CPSC) was established with people from the Department of Public Works, the Roads and Traffic Authority and other NSW agencies, but no private sector involvement. Its primary responsibility was to develop a code of practice to be implemented by all government agencies which would then drive reform within the industry. The CPSC's work was published in 1996 as the Capital Project Procurement Manual (CPPM), with the Code of Practice for the Construction Industry and a Code of Tendering for the Construction Industry. The objectives of the CPPM were to define minimum levels of acceptable behaviour, and to provide goals that facilitated higher performance from both individuals and organisations. 

The NSW strategy was mirrored in Victoria and Western Australia. Both States adopted Codes of Practice requiring contractors and subcontractors to meet defined standards on industrial relations and tendering. Then the Commonwealth, State and Territory governments through the Australian Procurement and Construction Council introduced a National Code of Practice for the Construction Industry (1997). 

 

The Cole Royal Commission 2001-03

 

In May 2001 the CFMEU’s NSW Secretary John Sutton made allegations of organised criminal activity within the union on the ABC’s 4Corners program. As in the 1980s, there was intense conflict between ex-BWIU members and the Victorian BLF for control of the NSW branch. A report for the Minister for Workplace Relations Tony Abbott then alleged union officials were engaged in bribery and criminal corrupt conduct, and accepted secret commissions. The Howard Government appointed Justice Terrence Cole QC as sole Commissioner in August 2001 to inquire into the ‘nature, extent and effect of any unlawful or otherwise inappropriate industrial or workplace practice or conduct.’ 

 

Ten years after Gyles the same problems were still prevalent. Commissioner 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. 

 

In his Final Report 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 in 2003 had 212 recommendations, the great majority about changes to federal workplace relations legislation governing the building and construction industry. Federal Cabinet extended the operation of the Commission’s Building Industry Task Force, pending the establishment of the Australian Building and Construction Commission (ABCC). However, the legislation for that was rejected by the Senate and it was not until 2005, after the election in 2004 when the Coalition gained control of the Senate, that the bill was passed. Cole intended the ABCC to monitor illegal behaviour by unions and, while the ABCC had a restraining influence on the conduct of the CFMEU, it clearly did not fundamentally alter industry ‘standards of commercial and industrial conduct’ before its first abolition in 2012.


 

Conclusion

 

Nearly 40 years after the deregistration of the BLF because of corrupt officials and illegal behaviour, evidence of these problems today in the Construction Division of its successor union the CFMEU have again been made public by investigative journalists. Previous media reports on these issues led to two Commonwealth Government Royal Commissions in 2001 and 2014, and there was a third Royal Commission in NSW in 1991. Through these three Royal Commissions and other state inquiries, the ABCC coming and going twice, and the shift of industrial relations from a centralised system to enterprise bargaining, the CFMEU has endured. 

 

While many of the recommendations from Commissioners Gyles, Cole and Heydon did become legislation, perhaps the 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 industry policy or the direction that development of the industry might take. In their absence we have had quasi-judicial agencies and an emphasis on industrial relations. 

 

The three Commissioners agreed the fundamental problem is a union culture of lawlessness, and the three inquiries found illegal behaviour by both union officials and contractors. In keeping with Australia’s complex and institutionalised industrial relations system, the focus of their inquiries was on industrial or workplace practice and conduct and their recommendations, in various ways, primarily focused on increased regulation and enforcement through legislative action. In this they had, as Roger Gyles’ said, ‘well developed and precise views.’ 

 

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 agreements between unions, employers and government? Clients use of fixed price contracts makes contractors vulnerable to union action that may delay their projects, and can also affect their choice of subcontractors. 

 

It is worth asking if the recommendations of the Gyles and Cole Commissions, and other subsequent State inquiries and industry codes of conduct, had all been implemented and followed through, would the third Heydon Royal Commission have been necessary? Enforcement is an expensive exercise, due to the cost of monitoring projects and the staffing and resources required for the relevant agencies. It fact, it is unlikely these agencies would get the resources needed to cover an industry as large and diverse as construction, thus it is unlikely that the issues of criminality and illegal behaviour can be solved by increased regulation alone. Also, there have no police actions against the CFMEU for links to criminals over the last three decades despite the evidence available, and the cases taken to court by the ABCC when it was active were on workplace issues and behaviour.  

 

Will this time be different? Under the centralised industrial relations system of the 1980s, deregistration was the only option for dealing with the BLF. Today an external administrator can be appointed to run the CFMEU and reform the union and replace the leadership. While that is a necessary step to stop corrupt and illegal behaviour by current officials, it may not be sufficient to replace the ‘law of the jungle’ with  the ‘rule of law’ in the Australian construction industry. 

 

 

 

 

 

 

Friday, 5 July 2024

Structural Aspects of Australian Construction

 Employment, income and value added



 

Australian construction has significant structural characteristics. Small and micro firms account for nearly two thirds of activity and employment compared to medium and large firms, and over three quarters of the industry is found in the three largest states. This post first looks at the differences between the states using data on industry employment and income. The second part looks at the employment and value added shares of the four different sizes of firms. 


 

State shares of employment and income 

 

The construction industry in Australia is highly concentrated in the three largest states of New South Wales (NSW), Victoria and Queensland, which account for 78 percent of construction employment, with a combined share of NSW and Victoria of 57 percent.

Including the Western Australia (WA) share of employment of 12 percent brings the total for the four states to 90 percent, so the share of the rest of Australia made up of the Australian Capital Territory (ACT), Northern Territory (NT), Tasmania and South Australia (SA) is only 10 percent of the Australian total.  As Figure 1 shows this is also the case for income, although NSW and Vic have slightly larger shares of income than employment.


 

Figure 1. State shares of employment and income

 


Source: ABS. RoA is Rest of Australia: Australian Capital Territory, Northern Territory, Tasmania and South Australia.


 

There was not the same distribution of employment across the states in the past. In 2008 the number of people employed in NSW, Victoria and Queensland was almost the same, around 250,000 each (which then like now was 77 percent of the Australia total). Employment in WA increased during the mining boom 2011-14 but fell afterwards and is still below the level of 2014. Employment has been increasing since 2012 in NSW and in Victoria since 2016. In Queensland employment did not regain mining boom level until 2021, and has since increased significantly. As Figure 2 shows, compared to 2008 by 2023 there was a large difference in employment between NSW, Victoria and Queensland. 


 

Figure 2. Construction employment in major states

 


Source: ABS.

 

 

Figure 3 has the data for the rest of Australia, which shows how the relative size of construction in the ACT, NT and Tasmania is very small, with employment numbers around the 10,000 level. What is striking about those states is the lack of growth in construction employment since 2008, which reflects the low growth in their state economies. In SA there was a 40 percent increase in employment between 2016 and 2023. 

 


Figure 3. Construction employment in small states

 


Source: ABS.

 


This data is from the Australian Bureau of Statistics annual publication Australian Industry for employment in June and sales and service income in the financial year 2022-23. The state level data for construction sales and service income is unique to Australian Industry. For employment the usual source is Labour Force Australia, Detailed which gives full-time and part-time employment by industry for May and August [1].

 

As shown in Figure 1, the pattern across the states for income closely follows employment, with the four major states accounting for 91 percent of the total, and NSW and Victoria 60 percent of the total. However, there are noticeable differences between the states in income per employee. In 2023 the ACT had the highest income per employee by a considerable margin. Why that is the case is not obvious, but may be due to a higher proportion of institutional and commercial construction work compared to the other states. The major states have higher income per employee than the other smaller ones, with the exception of Queensland where income per employee is similar to SA and NT levels. 


 

Figure 4. Comparison of income per employee by state

 


Source: ABS.

 

 

Employment, Value Added and Firm Size

 

One of the other data sets in Australian Industry is on firm size. The ABS breaks industries into Micro firms with 0 – 5 employees, Small firms with 5 – 19 employees, Medium firms with 20 -199 employees, and Large firms with over 200 employees. In the construction industry Micro firms are the great majority, and had 44 percent of construction employees in 2023. However, that share has fallen over the last three years since 2021 when Micro firms were 47 percent of total employment. In 2023 the employment share of Small firms was 21 percent, of Medium firms 22 percent, and Large firms 14 percent. Each of those three categories of firms has increased their share of the total by one percent since 2021 as the share of Micro firms fell by 3 percent. 


 

Figure 5. Construction employment in June

 


Source: ABS.

 

 

Australian Industry also has Industry value added (IVA) by firm size, and this shows an important structural characteristic of Australian construction. There is a big difference in the 33 percent share of total construction IVA for the Micro firms is compared to their 47 percent share of total employment, and this much higher share of employment than IVA is indicative of a low level of productivity in Micro firms. 

 

As Figure 6 shows, for Small firms the shares are almost equal at 21 and 20 percent for employment and IVA respectively, and for Medium firms the shares are 22 and 26 percent. However, for Large firms there is a big difference, with a 14 percent share of employment compared to 21 percent of IVA, so there is a much higher level of productivity in the few Large firms than all other construction firms. Australian Industry does not give the number of firms in each category, but previous surveys have found less than 1 percent of construction firms are Large. 

 

The value of IVA per person employed can also be compared: for Micro firms it was $100,000 in 2023, for Small firms $124,000, for Medium firms $157,000, and for Large firms $195,000. Clearly, Medium and Large firms have higher levels of productivity measured as IVA per employee, with Large firms having nearly twice the IVA per employee as Micro firms.

 

 

 

Figure 6. Share of Industry by size of firm

 


Source: ABS.

 


This suggests reducing the number of micro firms would raise construction productivity, but it may not be so straightforward. Many of the micro firms will be doing repair and maintenance work, which is typically much more time and labour intensive than new builds. That is why knock down and replace is often preferred over major refurbishment. Amalgamating micro firms into small or medium ones that do the same work is unlikely to have much effect on overall industry productivity if the nature of the work is the primary cause of the low level of productivity, not the size of the firm. The issue here is the inclusion in Construction industry statistics of firms ranging from the micro local trades to large national contractors. 

 

This highlights the need for better data on construction work so repair and maintenance, alterations and additions, residential and non-residential building, and engineering construction are identified with the work done by contractors and the trades allocated to the main type of work. This would provide more relevant measures of productivity, allowing the labour input to each type of work to be estimated and matched to the value of work done. 

 

 

Conclusion

 

Australian construction has some striking structural characteristics. Activity and employment is highly concentrated, with the two states of NSW and Victoria accounting for half of the industry. Adding Queensland and WA brings that to 90 percent of industry employment and income. Because the other four states and territories account for only 10 percent of the industry’s employment and income, policies targeting the construction industry need to consider the major role the four big states, and particularly NSW and Victoria, will play in their success.

 

The structure of the industry is a pyramid made up of a wide base of many micro and small firms with a layer of medium sized firms in the middle, and a top containing a few large firms. Although those large firms are less than one percent of the number of firms, they employ 14 percent of the people and produce 21 percent of industry value added. Medium and large firms have much higher levels of productivity, measured as IVA per employee. For large firms this is $195,000, nearly twice the micro firm IVA per employee of $100,000.

 

The low level of productivity the micro and small firms that are the great majority of construction firms affects the industry level. Many of these firms are trades doing labour intensive work in residential repair and maintenance where there are few productivity gains available. Because industry statistics include this work with new work done in building and engineering construction the overall level of industry productivity is lowered, and productivity increases in new work from mechanisation and automation will tend to be cancelled out as growth in the size of the stock of buildings leads to an increase in the amount of repair and maintenance work required. 

 

 

[1] In Australian Industry the total number of people employed is not exactly the same as that found in the ABS Labour Force Australia, Detailed, the usual source of data that has full-time and part-time employment in May and August. For example, the Labour Force data for August 2023 had a total of 402,344 employed in NSW construction compared to the Australian Industry estimate for June of 390,300 people. For Australia the LabourForce had 1,295,076 as total employed in construction in August 2023, and Australian Industry had 1,250,100 employed in June. There is no breakdown of employment between full-time and part-time in Australian Industry

Friday, 21 June 2024

The Australian Built Environment Sector 2023

 The economic role of construction and related industries

 


 


This post combines data from the annual Australian Bureau of Statistics publication Australian Industry for fifteen industries that have a direct relationship with construction and the built environment. These industries make up the Australian Built Environment Sector and in 2022-23 they employed 2.3 million people and produced $348 billion in output. The Built Environment Sector includes industries involved in construction of buildings and structures, management and maintenance of the built environment, suppliers of materials, manufacturers of machinery and components, and professional services providers. 

 

The analysis is based on Industry value added (IVA) and Industry employment (in June for each year). IVA is the estimate of an industry’s annual output and its contribution to gross domestic product (GDP), and is broadly the difference between total income and total expenses. IVA is given in current dollars in Australian Industry, therefore changes in IVA reflect changes in both prices paid for goods and services and the quantity of output.


 

Table 1. Built Environment Sector Contribution to the Australian Economy 2022-23

                                                                                     Employment               IVA $bn

Total Australian Built Environment Sector                  2,266,000                    348

Total Australian employment and GDP                      15,369,000                  2,564

BES Percent of total employment and GDP                14.7%                          13.6%

 Source: ABS 8155, ABS 5206, ABS 6202. 

 

The IVA of the fifteen industries contributed 13.6 percent to nominal Australian GDP in 2022-23, within their long-run range between 13 and 14 percent of GDP since 2006-07.  Over that period the BES share of total employment fluctuated between 14 and 16 percent of total employment, and was 14.7 percent in 2022-23.

 

 

Figure 1. Built Environment Sector Contribution to the Australian Economy 2007-2023

Source: ABS

 

 

 

 

The Built Environment Sector

 

Onsite construction work links suppliers of materials, machinery, equipment, products and components. Consultants provide design, engineering, cost planning and project management services. Once produced, buildings and structures need to be managed and maintained over their life cycle, work done by another group of related industries. The built environment also needs infrastructure and services like water, sewerage and waste disposal, provided by yet more industries. he collective significance of these industries is obscured by their diversity, ranging from architecture to waste disposal, and their geographic distribution. Of the fifteen industries included in the Australian BES, three are from Construction.

 

Table 2. Industries included in the Australian Built Environment Sector.

Supply industries

Demand industries

Maintenance industries

Non-metallic mining & quarrying

Residential property 

Water, sewerage & drainage

Building construction

Non-residential property 

Waste collection & disposal 

Heavy and civil engineering 

Real estate services

Building & industrial cleaning 

Construction services

Building pest control services

Architectural services

Gardening services

Surveying & mapping services

Engineering design & consulting

Manufacturing industries

 

 

Comparing the shares of employment and IVA for each BES industry in Figures 2 and 3 shows Construction and Building services have smaller shares of IVA than employment and are more labour intensive, while Water and sewerage, Professional services and Property and real estate services have larger shares of IVA than employment and are relatively more capital intensive. 

 

 

Figure 2. Employment by industry 



Source: ABS.

 


Figure 3. Output by industry  

Source: ABS.

 


Since 2007 the combined share of BES employment for the three service industries of Property and real estate services, Professional services and Building services has increased from 34.2 percent to 36.1 percent, and their share of IVA increased from 33.7 to 38.5 percent. Manufacturing’s share of BES employment fell from 8.9 percent in 2007 to 6.5 percent in 2023, and the IVA share went from 10.7 to 6.3 percent. 

 

Missing from the industries included in the BES are transport and distribution. Materials, components and builders’ suppliers have to be supplied to site by the transport industry, and there are thousands of hardware stores and builders’ merchants that maintain stock, manage logistics and extend credit to customers. Like their contractor and subcontractor customers, much of the supply chain for building supplies and materials is highly fragmented. A further complication is manufacturers who not only sell to distributors like the hardware chains, but also sell direct or act as their own distributors. 

 

 

 

The Construction Industry is the Core of the Built Environment Sector

 

The Construction industry is divided into three sub-divisions: Building construction; Heavy and civil engineering construction; and Construction services (the trades). Of these, Construction services is by far the largest, employing 867,100 people in 2023 compared to 250,800 in Building and 142,400 in Engineering. In 2022-23, Construction accounted for 54.5 percent of BES employment, and that share has been between 54 and 55 percent since 2007. 

 

However, over time the Construction share of BES IVA has been gradually falling, from 50.3 percent in 2007 to 46.9 percent in 2023. The share of BES employment is higher than the share of IVA, mainly due to the labour-intensive nature and lower productivity of Construction Services, where the share of Construction employment is much larger than the share of Construction IVA. Within Construction, internal dynamics have seen the employment and IVA shares of Construction services decline since 2007.

 

In 2007 Construction services accounted for 74 percent of Construction employment and 67 percent of IVA, and in 2023 these shares were 69 percent of Construction employment and 60 percent of Construction IVA. In 2007 the share of Building was 21 percent of Construction IVA and 17 percent of employment, and in 2023 these were 23 percent of IVA and 20 percent of employment. For Engineering, in 2007 the share was 12 percent of Construction IVA and 9 percent of employment, in 2023 the shares were 17 percent of IVA and 11 percent of employment. 

 

The much larger share of IVA than employment for Engineering reflects the higher capital intensity of engineering work with its extensive use of heavy machinery like excavators and road making equipment. Although to a lesser extent than Engineering, this is also the case for Building because the use of cranes and other equipment makes it more capital intensive than Construction services, where hand tools are used. 

 

 

Figure 4. Building, Engineering and Construction services shares of employment 

Source: ABS.

 

 

BES Manufacturing

 

In Australian Industry data for Manufacturing is provided at the level of industry class, where broad categories like Wood products or Metal manufacturing are divided into specific industries based on their products. At that level it is possible to identify seventeen manufacturing industries that are primarily associated with the built environment. For industries like Concrete products, Clay bricks or Structural aluminium inclusion is straightforward. 

 

However, some industries will supply others outside the BES. Therefore, BES manufacturing data requires some give and take, so industries like Textile floor coverings (employs 1,622) and Reconstituted wood products (chipboard and particleboard manufacturing, employs 2,222) are excluded, while Mining and construction machinery (employs 9,556) is included. 

 

In 2023 there were 147,776 people employed in construction related manufacturing industries. As Table 3 shows, the three largest industries are Wooden structural fitting and components with 27,908 employees, Structural steel fabricating with 21,521 employed, and Architectural aluminium products with 16,703. There are several industries that employ around 10,00 people, including Other structural metal products, Glass and glass products and Ready-mixed concrete. At the other end of the scale Veneer and plywood, Clay bricks, Plaster products, and Metal roof and guttering each employed less than 2,000 people. 

 

 

Table 3. Built Environment manufacturing industries: persons employed 2023

 Prefabricated wooden building manufacturing                     1,412

Wooden structural fitting and components                           27,908

Veneer and plywood manufacturing                                      1,268

Paint and coatings manufacturing                                         7,128

Glass and glass product manufacturing                                 9,374

Clay brick manufacturing                                                        1,310

Cement and lime manufacturing                                            4,204

Plaster product manufacturing                                              1,435

Ready-mixed concrete manufacturing                                   9,213

Concrete product manufacturing                                           8,133

Structural steel fabricating                                                     21,521

Prefabricated metal building manufacturing                         8,636

Architectural aluminium product manufacturing                  16,703

Metal roof and guttering manufacturing                               2,162

Other structural metal product manufacturing                     10,315

Fixed space heating, cooling and ventilation equip.              5,488

Mining and construction machinery manufacturing              9,556

Total Built Environment Sector                                              147,766

 Source: ABS.

 

 

Figure 5. Australian Built Environment Sector manufacturing industries 

Source: ABS. Includes construction related industries.

 


Since 2007 the share of BES Manufacturing in total manufacturing IVA has risen from 15 percent to 16 percent in 2023. The large increases in 2022 and 2023were due to the rise in input costs, as prices for materials and labour increased by around 40 percent. 

 

 

Macroeconomic Role 

 

The Australian BES has a significant macroeconomic role, firstly as a major source of employment, and second through the strong backward linkages in the supply chain to local manufacturing industries and materials suppliers. The effectiveness of economic policy often relies on the timing and extent of the BES response to changes in policy settings, seen in the 6.2 percent rebound of construction employment after the pandemic in 2020. 

 

Two other examples are the BES response to increased government expenditures in the fiscal policy response to the global financial crisis in 2008, and the increase in residential building from monetary policy loosening as interest rates were lowered to cushion the transition after the end of the mining boom in 2014.

 

During the financial crisis following the collapse of the US sub-prime mortgage market in 2008, there was a rapid and large increase in Commonwealth government expenditure on building work over 2009 and 2010, focused on schools. This fiscal policy stimulus was intended to maintain employment and economic activity at a time when the economy was slowing after the rate of GDP growth in 2010 dropped to half the rate of 2009. The increase in public expenditure led to an increase in BES employment of 5.3 percent, from 1,834,000 in 2010 to 1,932,000 in 2011. 

 

After 2016, as Engineering construction work dropped from the record highs of the mining boom between 2013 and 2015, the Reserve bank of Australia lowered interest rates to boost other parts of the economy. The subsequent increase in residential building work during the apartment boom between 2016 and 2019 prevented a recession during the transition period after mining investment was no longer driving growth. That increase in residential building led to an increase in BES employment of 6.7 percent, from 1,918,000 in 2016 to 2,046,000 in 2019.

 

Figure 6. Australian Built Environment Sector employment 

Source: ABS.

 

 

Conclusion

 

When a dense network of many different firms from different industries are too geographically distributed to be a cluster, they are an economic sector.  There is no specific definition of an industrial sector, as it is a broad collection of firms with one or more common characteristics, like ‘agriculture’ or ‘the business sector’, though firms in these sectors come from many different industries. This is also the case with the diverse collection of firms and industries involved in constructing and maintaining the built environment.

 

There are fifteen industries with data available from the annual ABS publication Australian Industry that can be classified as contributing to the built environment. The industries included in the Australian Built Environment Sector form one of the largest and most important industrial sectors in the economy. The BES includes industries involved in construction of buildings and structures, maintenance of the built environment, and related suppliers of materials and professional services. The collective significance of these industries is obscured by their diversity, ranging from architecture to waste disposal, and their geographic distribution. Viewing them as an industrial sector provides perspective on their role and significance in the economy.

 

The analysis is based on Industry value added (IVA) and Industry employment. In 2022-23, the BES employed 2.3 million people and produced $348 billion in output, their IVA contributed 13.6 percent to nominal Australian GDP and their share of total employment was 14.7 percent. The construction industry is the core of the sector, making up 55 percent of BES employment, and 47 percent of BES IVA. Seventeen manufacturing industries are included in the Australian Built Environment Sector, and in 2023 there were 147,776 people employed in these construction related manufacturing industries.

 

The Australian Built Environment Sector has a significant macroeconomic role as a major source of employment, and through its links in the supply chain to local manufacturing and materials suppliers. The effectiveness of economic policy often relies on the BES response to changes in policy settings, like the 6.2 percent rebound of construction employment after the pandemic in 2020. Two other examples were BES employment growth in response to increased government expenditures in the fiscal policy response to the global financial crisis in 2009, and to the increase in residential building from monetary policy loosening as interest rates were lowered to cushion the transition after the end of the mining boom in 2014.

 

In the same way Manufacturing is not itself an industry, but a collection of industries that make up an industrial sector of the economy where firms have similarities in products and processes, industries that contribute to the construction and maintenance of the built environment can also be collected and their contribution to output and employment measured. The economic role of the BES is important and better data on its structure and role can contribute to policy decisions that significantly affect both its own performance and macroeconomic outcomes.