The Cole report: restoring the rule of law in the construction industry

Earlier this month the government tabled 22 volumes of the Cole Royal Commission into the Building and Construction Industry.

Former Court of Appeal judge Terence Cole made 392 specific findings of unlawful conduct and, in the confidential final volume, recommended that 31 individuals be referred for possible criminal prosecution. As was to be expected, the construction unions claimed that the report was a witch-hunt and people who should have known better claimed that Cole was biased.

The anti-union allegations were never very plausible given that most unions had refused to cooperate with the Commission and had even boycotted the Commission's special conference on occupational health and safety. As things have turned out, one of their own has fatally undermined the unions' case. The National Secretary of the Construction Division of the CFMEU has unwittingly confirmed that Cole is right. In an unguarded moment, John Sutton admitted to a Melbourne newspaper that "virtually everything we do breaches part of this Act". Sutton's admission means that Cole's description of a largely lawless industry cannot credibly be denied. The problems of the industry have been established beyond credible doubt and the question now is: what needs to be done about it?

Nothing, says the CFMEU, because it's alright to break the law in the best interests of the working class. Leading union officials take the view that, in a tough industry, only wimps take the law seriously.

Change won't be easy in an industry conditioned to think that might is right. Change which shifts power from one unscrupulous group to another will not be reform. As Grocon has discovered, the first company to "buck the system" is liable to heavy-duty industrial payback. No one wants to be the first to change but change is necessary in the national interest.

In 2002, the Victorian construction industry alone accounted for 17 per cent of all days lost through strikes. WA accounted for another eight per of the national strike tally. Construction is a $40 billion a year industry comprising six per cent of GDP and employing 500,000 Australians. Due to over-manning, demarcation disputes and chronic stoppages, labour productivity in commercial construction averages 13 per cent less than in home building. Plastering the same wall in the same way costs 40 per cent more in a high-rise building than in a standard house. Just raising commercial construction labour productivity to the home building standard would mean, according to Econtech, a one per cent drop in the cost of living, a one per cent increase in GDP and $2.3 billion in benefits to consumers, workers and taxpayers every year.

Change is about decent Australian values, not just a more efficient industry. Workers don't like late-night house calls, compulsory attendance at demos, and days spent sitting in the shed to make an industrial point any more than bosses. Threats of violence, contempt for court and commission orders, mob rampages when one side doesn't get its way, habitual failure to honour agreements and routine harassment of people exercising their legal rights are not acceptable in modern Australia and cannot be excused even in a good cause.

After the meeting of the Workplace Relations Ministerial Council of the Council of Australian Governments, state and territory ministers declared: "There was unanimous agreement that unlawful behaviour in the building and construction industry is not acceptable".

Unfortunately, the state and territory ministers supported more powers for the Australian Industrial Relations Commission to settle construction industry disputes. In fact, the Commission already has power to settle disputes. What's missing is effective power to enforce agreements. The issue is not settling disputes. The issue is enforcing the law.

The construction industry typically conducts itself like this: A certified agreement is in place including an agreed dispute resolution procedure. Unions identify a grievance, often a spurious safety issue. Agreed dispute procedures are not followed and a strike ensues, even though strikes outside "bargaining periods" are "unprotected" and theoretically subject to damages orders. At that point, employers often ask the Commission to end industrial action but instead of ordering an immediate return to work because an agreement has been breached, the Commission will typically seek to conciliate on the basis of the "merits" of the issue. With costs escalating and liquidated damages looming, the employer invariably agrees to rectify the matter alleged and to pay increased allowances (including pay for days on strike). At this point, the Commission orders a return to work on the basis of the agreed settlement - which lasts only until the union decides on its next move.

The union has ignored the law and broken its original agreement but typically suffers no adverse consequences. The employer has been manoeuvred into conceding a demand that should never have been made. A façade of legality conceals a travesty of unionism and a travesty of justice. Nearly all construction industry strikes are unprotected and potentially unlawful under section 170MN of the Workplace Relations Act. Even so, employers nearly always opt to pass costs onto consumers, while existing arrangements for gathering information, launching prosecutions and imposing fines hardly work at all in an industry where giving evidence against the unions is thought to mean commercial suicide.

The construction industry is a classic case not of market failure but of regulatory failure. The fact that it does not face potential import competition limits its exposure to market discipline. Still, the main reason why unions can get what they want from business and business can get what it needs from hapless consumers is the absence of independent policing and enforcement of the industrial equivalent of fair trading laws. To an extraordinary degree, the commissions lack sufficient power, the courts lack sufficient speed, the employment advocate lacks sufficient authority and the police lack sufficient interest.