THE wide-ranging Royal Commission into Trade Union Governance and Corruption will thoroughly probe the conduct of union officials. Item No 7 in the terms of reference will be of particular interest to the building and construction industry. It authorises an inquiry into and report on “any bribes, secret commissions or other unlawful payments or benefits arising from contracts, arrangements or understandings between registered employee associations or their officers and any other party”. Item No 9 calls for a report on the adequacy and effectiveness of existing systems of regulation and law enforcement in dealing with unlawful conduct. I suspect the most lasting benefits of the royal commission will be the economic ones that flow from a more law-abiding building and construction industry. Building and construction is estimated to account for about 8 per cent of gross domestic product and to employ more than a million people. It is accepted that an efficient construction industry is crucial to sustain a competitive economy. The reported penetration of corrupt conduct will inevitably cause distortions in economic performance and reduced efficiency. Past studies provide proof of the benefits of combating unlawful conduct. I commissioned Econtech, an independent provider of economic modelling services, to analyse the economic benefits of the Australian Building and Construction Commission, particularly the effect on productivity. Two reports were produced in 2007 and 2008. The Master Builders Association continued the practice and received reports in 2009, 2010, 2012 and last year. The reports found the ABCC made a significant impact on the industry’s productivity. The magnitude of gains was estimated to be 9.4 per cent. The 2013 report estimates 75 per cent of the gains achieved during the tenure of the ABCC are lost with its abolition and the return to past exploitative practices. The ABCC gains translated into substantial benefits for the national economy. Econtech modelling estimated the benefit to be $7.5 billion for consumers of the industry’s services. In looking behind the figures, it is not hard to see why a more law-abiding industry is more efficient. Many contractors observed that the introduction of the ABCC backed by a national code that was enforced with rigour changed the dynamics on building sites. No longer was site management caught up in dealing with weekly or even daily industrial disputes. Cases of workers staying in the sheds or threatening bans and strikes basically disappeared. Managements could devote more time to supervising a site’s construction procedures and getting the job done. Contractors reported a marked improvement in the number of projects completed on time and within budget. At the same time the tender prices took account of the more stable workplace relations environment. It was reported that actuarial calculations behind large project bids reduced the allowance for industrial disruption from 10-15 per cent to 2-3 per cent of the tender price. Other studies support these impacts. A study was tabled at the Cole royal commission comparing the costs of building the same distribution centre in Melbourne and Sydney. The client was a major food retailer. The Melbourne distribution centre was more than 20 per cent costlier than the Sydney project, with the higher labour costs and greater disruption encountered there. A study by the John Holland construction company found a 10 per cent productivity dividend following the introduction of the ABCC. Woodside Petroleum constructed two similar LNG trains, one before and the other after the ABCC. The first suffered a 2.3 per cent loss of hours due to industrial disruption while the second saw the figure reduced to 0.4 per cent. Allen Consulting Group estimated the ABCC regime achieved a 2 per cent reduction in project labour costs. The economic benefits of a lawful building and construction industry are tangible. Australia is embarking on major infrastructure development. The coming years will see many large construction projects as roads, rail, ports, airports, hospitals and schools are built and upgraded. Taxpayers expect governments to get value for money when undertaking these projects. In the past that has not been the case as government projects have often attracted a disproportionate amount of unlawful activity. Opponents of the ABCC and the royal commission will contest these findings. Dave Noonan, national secretary of the construction division of the CFMEU, said at the union’s national conference last October: “Their (the Coalition’s) economic case for the ABCC - that it improves productivity in the industry and is therefore in the national interest - is based on a lie.” I urge caution in accepting this argument. In the same speech he said: “There is simply no credible evidence of criminality by the union.” The royal commission will now test the evidence. If effective measures are taken to combat corruption and strong regulatory controls are reintroduced the Australian economy and community will reap a significant benefit. John Lloyd is a former ABCC commissioner. theaustralian.au/national-affairs/opinion/inquiry-must-root-out-costly-union-corruption/story-e6frgd0x-1226824021632
Posted on: Tue, 11 Feb 2014 21:19:57 +0000
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