There is a big problem in the construction industry but it isn’t the CFMEU

By Kaye Lee and published by the AIM Network

In November last year, Malcolm Turnbull issued a press release titled ABCC necessary to stop CFMEU lawlessness

The statement tells us that “The ABCC was established by John Howard in 2005 to ensure unlawful union action was properly investigated, dealt with and penalised”, emotively claims that “militant unions are making it more expensive to build hospitals, schools and roads – or international sports facilities”, and warns that “Australia can’t afford such lawlessness and dysfunction in our third-largest industry.” If you’re in need of someone to settle construction related disputes, perhaps you would find the services of Boutique Lawyers useful.

The PM goes on to make the completely false statement that “During the seven years the ABCC was in place, construction industry productivity increased by 20 per cent.” This is just a flat out lie.

He further claims “Since the ABCC’s abolition, productivity has flatlined, while the rate of disputes in the sector has increased by 40 per cent. In all other industries, the rate of disputes has declined by 33 per cent.”

Turnbull said “When there’s a problem with the construction industry, it flows through our whole economy. And there is a big problem.”

He’s right about that. He just isn’t being honest about the real culprits who were exposed in a Senate report on insolvency in the Australian construction industry which was published in December 2015. The following is an excerpt from that report.

The industry’s rate of insolvencies is out of proportion to its share of national output. Over the past decade the industry has accounted for between 8 per cent and 10 per cent of annual GDP and roughly the same proportion of total employment. Over the same period, the construction industry has accounted for between one-fifth and one quarter of all insolvencies in Australia.

This outcome isn’t, as some have argued, the result of market forces. While the construction industry is highly competitive and market forces play a part, there are other powerful factors at play. The structure of the commercial construction sector all the way down to a brisbane crane hire has some serious imbalances of power in contractual relationships, harsh, oppressive and unconscionable commercial conduct play a major role when combined with unlawful and criminal conduct and a growing culture of sharp business practices all contribute to market distortions. As a result, the industry is burdened every year by nearly $3 billion in unpaid debts, including subcontractor payments, employee entitlements and tax debts averaging around $630 million a year for the past three years

In the view of the committee, the relative inaction that has characterised most government responses to the completely unacceptable payment practices in the construction industry has to end. But companies similar to
Primus Builders (www.primusbuilders.com) will suffer, they don’t deserve too. They do such great work. The continued viability of the industry in its current structure requires Commonwealth intervention to ensure that businesses, suppliers and employees that work in the industry’s subcontracting chain get paid for the work they do.

The committee considers that the estimates of the incidence of illegal phoenix activity detailed in this report suggest that construction industry is being beset by a growing culture among some company directors of disregard for the corporations law.

Over three thousand possible cases of civil misconduct and nearly 250 possible criminal offences under the Corporations Act 2001 were reported in a single year in the construction industry. This is a matter for serious concern. It suggests an industry in which company directors’ contempt for the rule of law is becoming all too common

Recent studies indicate that illegal phoenix activity (across all industries) may cost between $1.79 billion and $3.19 billion per annum. Given the over-representation of construction businesses in insolvencies and phoenixing, the committee believes the construction industry is responsible for a substantial proportion of this cost.

The economic cost of insolvencies in the construction industry is staggering. In 2013– 14 alone, ASIC figures indicate that insolvent businesses in the construction industry had, at the very least, a total shortfall of liabilities over assets accessible by their creditors of $1.625 billion. Others who have analysed the data place the amount at $2.7 billion. The construction industry consistently rates as either the highest or second highest as against all other industries when it comes to unpaid employee entitlements.

Businesses now operate in an environment in which non-payment for work carried out is commonplace, cash flows are uncertain and businesses lower down in the subcontracting chain have little power relative to those at the top of the chain. In this environment, there is very little incentive to invest the necessary capital to adopt new and innovative construction methods, invest in new capital equipment or invest in workforce skills development.

The construction industry consistently ranks in the three least innovative industries in the country. According to latest available ABS innovation data, only a third of construction businesses could be classed as ‘innovation-active’ compared with more than half of businesses in the warehousing, media and telecommunications and retail sector businesses. Less than fifteen per cent of construction businesses had innovation in development, compared with over thirty percent of manufacturing businesses and 35 per cent of media and telecommunications businesses.

As innovation is a key driver of productivity, profitability and job creation, the lack of innovation in the industry must be addressed.

The construction industry accounts for an unacceptably high proportion of total alleged criminal and civil contraventions of the Corporations Act. This is indicative of a culture that has developed in sections of the industry in which some company directors consider compliance with the Corporations Act to be optional.

This culture highlights the importance of a reform to legislative and regulatory framework so that it better protects law abiding industry participants from unscrupulous business practices.

Section 596AB of the Corporations Act prohibits transactions entered into with the intention of preventing the recovery of employee entitlements or depriving employees of their entitlements and imposes a criminal sanction for breach. Yet, despite clear evidence of this occurrence, no prosecution under section 596AB has ever been initiated.

The report goes on to make 44 recommendations whilst pointing out that the problems have been known, and recommendations ignored, for decades.

This report is the latest in a long series of inquiries and reports dating back to at least 1995 that have considered the merits of changes to the law to regulate the payment of head contractors, subcontractors, workers and others in the building and construction industry. These inquiries have provided report after report, recommendation after recommendation, to State and Commonwealth governments, providing compelling evidence that any participant in a construction project who holds or receives money on account of the contract and is under an obligation to pay another participant, should be subject to a statutory obligation to hold the money as a trustee.

Similarly, a number of inquiries and reports have recommended the introduction of uniform, national security of payments legislation in the construction industry.

1 Comment on "There is a big problem in the construction industry but it isn’t the CFMEU"

  1. The “BUSINESS ONLY LNP REGIME” has always covered up for the crooked bosses & demonised the workers & their unions. It has got worse under Abbott/Turnbull mob & Rupert`s Rags

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