Back-to-the-future in construction procurement

Renewed commonwealth scrutiny of enterprise agreements.

Fair Work Building and Construction (FWBC) will now act as a ‘one-stop-shop’ regulating on-site compliance and assessments of enterprise agreements against the Building Code, taking over the latter role from the Commonwealth Department of Employment. This is likely to breathe new life into the Building Code and have significant ramifications for enterprise agreement negotiations currently underway in the construction sector.

Background

Procurement codes are a device by which the Commonwealth uses its purchasing power on taxpayer-funded projects to ensure policy goals such as enhanced safety and value for money, by excluding tenderers with unsafe or unlawful industrial practices and anti-productive enterprise agreements. By acting as a ‘model client’, the intention is to cause a ripple-effect throughout the industry, with Commonwealth contractors obliged to implement federal procurement guidelines on both public and privately-funded projects.

The first procurement code which seriously attempted to reform industry practices, which successive Royal Commissions have found are typified by anti-competitive practices and disregard for the rule of law, was released by the Howard Liberal Government in 2003. The then Department of Employment and Workplace Relations was responsible for vetting the proposed enterprise agreements of entities seeking to tender for Commonwealth-funded work.

The impact of federal procurement guidelines were significantly diminished following the election of the Rudd Labor Government in late 2007, in part due to relaxed requirements but also because of an administrative practice implemented by the then Minister for Employment, Julia Gillard, which deemed all enterprise agreements approved by the Fair Work Commission (FWC) to be automatically compliant with federal procurement codes. Because the Fair Work Act 2009 (Cth) (FW Act) enables enterprise agreements to be approved by the FWC even where they contain restrictive work practices or even unlawful content, this administrative practice rendered Commonwealth procurement guidelines of almost no effect.

In early 2013, the Gillard Government (with Bill Shorten as Minister for Employment) turned what were previously administrative procurement guidelines into a statutory instrument, with the release of Building Code. This ensured that federal procurement rules took precedence over conflicting State policies. While the then Commonwealth Department of Education and Employment and Workplace Relations continued to assess enterprise agreements for compliance against the Building Code, those certified by the FWC were essentially automatically approved, in line with previous practice.

That is now set to change, with Minister for Employment Michaela Cash transferring responsibility for assessments of enterprise agreements from the Department of Employment to the existing industry-specific regulator, FWBC. While enterprise agreements made (i.e. voted on by employees) before 18 May 2016 will still be deemed to be compliant, any made on or after that dated will be assessed by FWBC for strict compliance against the Building Code. It is expected that FWBC will subject enterprise agreements to much greater scrutiny than the Department of Employment.

How does this affect you?

The Building Code governs a broad range of Commonwealth-funded construction work. The ultimate sanction against a contractor for non-compliance is exclusion from tendering for Commonwealth-funded work, including closely-related entities.

While the Building Code is concerned mainly with on-site practices by construction industry participants, it does have a number of provisions that could impact on the content of enterprise agreements.

The Building Code imposes proactive duties on tenderers to ensure freedom of competition and association, which typical union enterprise agreements could breach in practice. In particular, the Building Code prohibits head contractors from:

  • requiring subcontractors to have particular industrial instruments in place, such as pattern union enterprise agreements;
  • coercing or applying ‘undue influence’ or ‘undue pressure’ to subcontractors to make over-award payments or payments under a pattern union enterprise agreement.

Other requirements in the Building Code impose obligations on head contractors and subcontractors to ‘adopt… policies’ that ‘ensure that persons are… free to become, or not become, members of… [unions]’.

The pattern Construction, Forestry, Mining, Energy and Energy Union (CFMEU) enterprise agreement is currently in various stages of re-negotiation in Queensland, New South Wales, Victoria and the Australian Capital Territory, after expiring throughout 2015 and 2016. The proposed replacement agreements typically contain provisions which expressly state that head contractors must require subcontractors to mirror the terms of the head contractor’s pattern CFMEU enterprise agreement. If a head contractor were to impose such a requirement on contractors as a condition of tender, they would not only potentially breach the Building Code, but also the FW Act, which prohibits tender-discrimination against subcontractors based on whether they have enterprise agreements or not.

The proposed replacement pattern CFMEU enterprise agreements also contain a number of rights of entry for union officials, for example to attend inductions of new employees. Terms such as these are likely to either breach the Building Code or lead tenderers into non-compliance in practice, for example if the inductions are unsupervised and employees feel pressured to join a union.

What should you do?

If tenderers for Commonwealth construction work are entering into negotiations for a new enterprise agreement, whether a company-specific agreement or a pattern union one, it is essential that they submit a draft to FWBC for assessment against the Building Code. Otherwise they could be excluded from Commonwealth-funded work.

ABCC and Building Code 2014

Industry participants should also be aware that, as part of the Turnbull Government’s proposed package of legislation that would replace FWBC with the Australian Building and Construction Commission, a further procurement code would be introduced, the Building and Construction Industry (Fair and Lawful Building Sites) Code 2014 (Cth) (Building Code 2014).

The Building Code 2014 is highly prescriptive in relation to the content of enterprise agreements. If it comes into force, it would apply to any enterprise agreements made on or after 24 April 2014 — i.e. any agreements currently being negotiated. The Commonwealth Department of Employment undertakes assessments of compliance of enterprise agreements against the Building Code 2014.

For more information contact the Employment, Workplace Relations and Safety Team:

Alisa Taylor — Partner — Project Delivery, Dispute Resolution
(02) 6279 4388
alisa.taylor@mvlawyers.com.au

John Nikoli — Associate — Employment, Workplace Relations and Safety Team
(02) 6279 4317
john.nikolic@mvlawyers.com.au