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.

The Cole Commission has acted as a giant searchlight probing the dark underside of this potentially great Australian industry. It confirmed what policy makers had long suspected and what influential insiders knew but had always tried to deny or explain away: that the industry operates under the rule of the jungle, and there will be no improvement until the people who work in it understand that the law has to be taken seriously. Legislative, institutional and structural change will start to mean something when law breakers in this industry are charged, convicted and punished. A few salutary bars of that old song need to waft over construction sites: "I fought the law and the law won".

Late last year, in response to the Royal Commission's first report, the federal government set up the Building and Construction Industry Interim Task Force. The brief to the Task Force is to ensure zero tolerance of industrial law-breaking. It is not primarily to enforce the tax laws or the safety rules because other bodies exist for this. The Task Force is to investigate and enforce Workplace Relations Act prohibitions on coercion, unprotected strikes, strike pay, and breach of industrial agreements. So far, it has visited 300 sites, launched 50 investigations, brought three prosecutions and referred nine other matters to state police, the Australian Federal Police or the Australian Competition and Consumer Commission.

These are the first public prosecutions arising out of industrial action in the construction industry since at least the 1980s, and are the result of a public policy commitment to law enforcement not seen since the Clarrie O'Shea case in 1969 and the end of penal sanctions. Cabinet has decided to extend the interim Task Force's operations until more permanent arrangements to secure the rule of law can be established.

Although it is a criminal offence under the Workplace Relations Act to hinder workplace inspectors, the Cole report noted that no prosecutions have yet been launched despite evidence that Office of the Employment Advocate inspectors have been abused, had objects thrown at them and their property damaged. It has been common practice for the arrival of OEA inspectors to lead to work stoppages and even site invasions in a bid to thwart and demoralise an independent investigator.

One of the problems with the workplace relations system is the assumption that parties will enforce the law against each other. This works in industries where workplace parties are more-or-less evenly matched and the issues are the workplace equivalent of an argument between neighbours over the height of a fence. It completely breaks down when one side has an effective monopoly over the supply of labour and disputes resemble a family telling the house full of footballers next door that the party's over. Expecting contractors to enforce the law against the CFMEU is like expecting people in the street to make citizen's arrests, hence Cole's principal recommendations of an Australian Building and Construction Commission to investigate, prosecute and enforce the provisions of a beefed-up industry specific workplace relations act.

Cabinet will support Cole's key recommendations. First, the government will seek a separate act governing workplace relations in the construction industry providing for secret ballots before strikes, compulsory cooling off periods after extended strikes, and damages awards in the event of unprotected industrial action. Second, the government will establish a new law-enforcement agency with powers to compel witnesses to testify, bring prosecutions and enforce judgments and with sufficient on-the-ground presence to police CBD building sites. Third, the government will establish a Safety Commissioner to monitor federally-funded construction sites to try to ensure that these become industry models. Fourth, the government will insist on the application of the National Construction Code and implementation guidelines to all significant new projects which are fully or partly federally funded.

Directly or indirectly, the federal Government funds about $5 billion worth of construction projects every year and is determined to use its role as client to drive change in the industry. In essence, the National Construction Code stipulates that construction projects must take place in conformity with the Workplace Relations Act. Under the Code and implementation guidelines, the federal government will not engage tenderers whose workplace agreements and practices ensure a closed shop on site. The Task Force will have full access to federally funded sites to ensure that the law is being observed and workplace agreements complied with.

For the federal government, the issue is upholding the law and trying to tackle the "union rules" culture which is at the heart of lawlessness in the industry. For the states, the issue is whether they are prepared to refuse federal money in order to protect the closed shop. However much they might prefer different federal laws, the states ought to accept that construction projects have to comply with the law as it stands, including the law mandating compliance with certified agreements.

State Labor governments risk losing some $4 billion a year in federal building and construction grants if they side with the union movement's most militant minority. There are likely to be limits to Labor's defence of a union whose stock-in-trade is the site invasion and the demand for payment and which quietly reinstates organisers sacked for assault or perjury. Opposition senators will find it hard to brand as "ideological" the recommendations of a royal commission which spent 171 days in public hearings and pursued 11 shop stewards and 97 union officials to obtain their side of the argument.

As Justice Cole pointed out, previous attempts to reform the industry have proven ineffective despite two earlier royal commissions and numerous enquiries. Although this royal commission's investigations seem to have temporarily checked lawlessness in the industry, a campaign is emerging to extend the anarchic culture of CBD construction into regional centres and the domestic housing industry. Things will certainly be different this time if Parliament approves a permanent, well resourced watchdog with new powers, new personnel and new attitudes. Unlike previous arrangements, a new statutory watchdog with the powers of a law enforcement agency should be effective and permanent.

Some of the world's best workers should no longer have to put up with some of the world's worst industrial practices. They have a right to an honest industry where they can earn a fair day's pay for a fair day's work and expect to come home uninjured. The enduring image of this industry should not be noisy marchers replaying the ideological struggles of the 1970s and raising clenched fists against authorities they don't like. The Australian industry is capable of work which is stunningly beautiful yet intensely practical and now it needs to perform consistently on time, on budget and in accordance with law.