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

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.”

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, 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. 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.

Yet, little or nothing has been done.

And it seems this will continue.  Why go after the company directors when you have unions to bash.

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29 comments

  1. jim

    Hear,hear, Unions are needed to protect workers rights thats why they exist, the banks also need a boot up their rear end……,Whether it’s retirees losing their savings because of dodgy financial advice, families paying fees and charges the banks aren’t entitled to take, or small businesses losing everything, it’s clear the banks have a systemic culture of putting profits before people.

    Instead of stopping the scandals and cracking down on the big banks, Malcolm Turnbull wants to give them a $7.4 billion tax cut.

  2. urbanwronski

    Excellent article, Kaye Lee, a timely rejoinder to the lies peddled by our PM and industry mouthpiece Malcolm Turnbull. Cannot believe that he is allowed to get away with the greater productivity under the last ABCC lie. Outrageous demonisation of the CFMEU and exaltation of construction companies and their staff who rip off smaller contractors and who fail to pay workers – because they can. I wonder how many of the senate cross bench or how many MPs in general have the faintest idea what goes on in the construction industry. This piece should be required reading for all who wish to understand the truth about non-payment practices in the industry and the real source of its problems. Far too much dangerous, damaging scapegoating of union and workers has helped hide the real truth.

  3. Harquebus

    In my opinion, the ABCC should be revamped, expanded and renamed ICAC.

    Cheers.

  4. Kaye Lee

    jim, the banks come in for some criticism in the insolvency report.

    “Financial institutions are privy to more information about the financial status of companies they are involved with than subcontractors engaged in specified projects. This came to a head in the case of Walton Construction’s, which collapsed on 3 October 2013.

    The committee notes that in this case, an information asymmetry existed between the National Australia Bank (NAB) and subcontractors engaged with Walton’s, which allowed NAB time to protect their interests.”

  5. jimhaz

    “Illegal phoenix activity involves the intentional transfer of assets from an indebted company to a new company to avoid paying creditors, tax or employee entitlements. The directors leave the debts with the old company, often placing that company into administration or liquidation, leaving no assets to pay creditors”

    MT would call these new companies “Startups”

    Turnbull also has a history of being silent about a company valuation when he knew it was overstated, and this was a big factor in the fall of HIH

    http://www.theaustralian.com.au/national-affairs/hih-the-focus-of-labor-efforts-to-take-down-malcolm-turnbull/news-story/e175e3ecf34b699513bc8de04ce60584

    “The action against Mr Turnbull, Mr Pillemer and Goldman Sachs was for alleged misleading conduct during the HIH takeover of FAI, for combined damages of $261m (plus interest, which had accumulated to $207m by 2007).

    The principal claim was that Mr Turnbull, Mr Pillemer and Goldman had contravened the companies law, misleading or deceiving­ non-executive directors of FAI by failing to mention the existence of Project Firelight, or that they had formed the opinion that the true financial position and net assets of FAI were substantially less than those that were to be reported by the group”

  6. Kaye Lee

    Exactly jimhaz. This is just normal behaviour for them. It is all about protecting the investors, never the workers. Turnbull has even made changes to lessen the liability of directors and bankrupts.

    “The proposed changes will reduce the stigma attached to bankruptcy and encourage bankrupts to re-enter the business arena. Reducing the bankruptcy period to one year aims to facilitate the rescue and rehabilitation of business people.

    The Bill introduces a defence where directors would be protected from an insolvent trading claim, if they engage a qualified restructuring advisor to assist in the process.”

    Yet in the report it says….

    “The committee also heard evidence about an emerging business model whereby, in the period leading up to a company entering administration, companies are obtaining preinsolvency advice on how to restructure their business prior to the company entering administration, which results in the company being able to avoid paying it creditors.

    ASIC noted in its evidence that this type of advice is often being provided by former insolvency practitioners who have been previously suspended from practice for misconduct. ASIC considers this practice to be a significant problem and it is unregulated.

    While corporate restructuring is often a necessary and beneficial strategy to ensure the ongoing viability of a business or to provide the greatest value to creditors, it appears that unscrupulous advisors are, in some cases, facilitating illegal phoenix activity.”

  7. Gangey1959

    Wow. Another great article KayeLee.
    I like Harquebus’s idea. As soon as possible.

  8. Dave

    Royal Commission into the ABCC?…….Or just a Commonwealth ICAC? Either will do, it seems that nothing ever comes of Senate or ASIC “inquiries”,………….. “It’s Time”

  9. Florence nee Fedup

    If I was Shorten, I would extend ABCC to cover whole construction industry from developers down, including politicians and financial interests. .

  10. John Kelly

    An utterly outrageous deception that, it could be argued, has been shielded from any proper scrutiny. Another prime example of the media failing to do its job.

  11. My say

    John when has the media ever done its job when the Liberals are involved,

  12. Kaye Lee

    I am surprised that Labor didn’t do a better job of advertising the findings.

    Senate Economics References Committee Members

    Senator Chris Ketter (Chair from 22 October 2015) Queensland, ALP
    Senator Sean Edwards (Deputy Chair) South Australia, LP
    Senator Sam Dastyari (Chair until 22 October 2015) New South Wales, ALP
    Senator the Hon. Doug Cameron (from 24 March 2015) New South Wales, ALP
    Senator Matthew Canavan Queensland, NATS
    Senator the Hon. Kim Carr (until 14 May 2015) Victoria, ALP
    (substituted by Senator Doug Cameron from 24 March 2015)
    Senator Jenny McAllister (from 14 May 2015) New South Wales, ALP
    Senator Nick Xenophon South Australia, IND

    Xenephon secured a concession to the ABCC bill which sounds like a whole lot of weasel words but may lead to something.

    He wants a taskforce to establish a national approach to the security of payments in the building sector including better dispute resolution and considerations for a statutory trust to protect subcontractors.

    http://www.afr.com/news/politics/malcolm-turnbull-secures-abcc-bill-with-nick-xenophon-deal-20161129-gt0epx

    “The ABCC is back. The rule of law is back. The bullying and the thuggery will come to an end,” Prime Minister Malcolm Turnbull told MPs.

  13. George Swalwell

    Kaye has only to highlight the dynamic Senate report on shoddy practices
    in the construction industry (shades of Trump not paying his contractors)
    to bring it all into focus.

    A shameful situation that has dragged on (and Australia down) for year
    after year.

  14. stephengb2014

    Fantastic article Kaye, I am in awe!

    Meanwhile, I have come to a conclusion that Australia is a corrupt country.

    This article demonstrates that this corruption is at all levels of government both Left and Right, and is at the highest level of business from the smallest sole trader to the largest national corporation.

    I assume that both the LNP and the ALP read these articles on AIMN?

    Yes I realise that the word assume makes an ass out of u and me.

  15. king1394

    The construction industry is rife with madmen and hoons. Safe working practices are seen as ‘red tape’. My son is home from work today, worrying about how he can keep his job, but unwilling to work on asbestos removal, in which he is unqualified, without appropriate safety for himself and the people around. Don’t tell me that a trade such as carpentry or plumbing is a good outcome when the construction sector is run by people who have no respect for their workers, either as people with skills and experience, or as people who have a right to remain safe at work.

    The use of casual labour, labour hire, sham contracting and similar practices remove the power of the working people to control their own work conditions. These workers cannot afford Union membership, and also develop a gung ho attitude themselves to the systems that still exist to protect them. At the same time, they fear to call on Workcover for assistance because, not only would they lose their existing job, but they would likely be blacklisted around the industry

  16. LOVO

    I work in, lets call it, an public service construction area. We quite often work with private contractors and subbies. We are mostly union members, the subbies are, more often than not, not in a union. We take WHS and PPE seriously and they do not.
    We often take pity on them and provide them with basics such as gloves and safety glasses etc. because their employers do not provide them with such basic equipment. We are required to do the work to a certain standard and spec. that the privates never do and yet they still get paid no matter how shoddy the work.
    The culture at the big end is condemning workers. Serious injury and death are real dangers in the construction industry and WHS is being waved away as just ‘red tape’ or to much of a cost imposition. WorkCover Officers are thin on the ground and are rarely seen.
    As King1394 said “The construction industry is rife with madmen and hoons “, this is, sadly, so very true…people would be amazed at what these employers get away with.
    The word needs to get out within the industry that if you want to work in a safe environment; JOIN a UNION
    ….or get a public service construction job. 😉

  17. Keitha Granville

    Why bash corporate failures when there’s a perfectly good union to bash ? Pretty much the same as why bash corrupt pollies when there are perfectly good welfare recipients to bash ?
    Same government, same rules

  18. Phil

    Thanks Kaye Lee for your critical summary of the December 2015 report and commentary on its context to date.

    I had a look at the linked report and it made me realise just how important people like you are to keeping us informed of the facts without our need to wade through the details in the forensic manner that you so adroitly do. Thanks again, you are a treasure and sincerely appreciated by this reader.

  19. Kaye Lee

    Thanks Phil. My attention was drawn to the report by this excellent article.

    “Mr Turnbull chose to ignore the cowboy practices of the construction sector to put all the energy off his Royal Commission into Trade Unions, leaving untouched rorters who consistently don’t pay those who build their projects and supply the materials.

    And as Queensland pushes ahead with major reforms to the sector and rebuilds its regulator, the Prime Minister and his government remain mute on the 2015 findings of a Senate inquiry which exposed the extent of its problems.”

    http://www.sunshinecoastdaily.com.au/news/fix-is-well-and-truly-in-and-voters-dont-buy-it/3133968/

    I had not read about it before.

  20. Paul

    Another great article Kaye! Keep up the fantastic work 👍

  21. Wun Farlung

    King
    Your son can have Union membership for less than$20/week and this is tax deductable

  22. MichaelW

    Ah, the building industry, one of my favorite topics having worked on building sites most of my life until retirement. What a shonky industry it is, unbelievable unless you have experienced it. Over the years I have seen conditions and wages improve when unions had power, then the sad decline under Howard. Never mind the so called crooked unions believe me the crooked builders put them to shame.
    Having owned a small company and dealing with building companies the experience was mind boggling.

    I have seen and experienced wages eroded, safety out the window, corners cut, shonky workmanship being approved, illegal underpaid imported workers, underpaid Australian workers, all of this and more since union powers have been stripped under coalition governments.

    I could go on and on, even being interviewed twice by Howard’s building (union) investigators, all they wanted was dirt on unions, not interested in crooked companies.
    Asbestos in hospitals and shopping centers, proper removal procedures ignored, I could write a book about this I reckon.

  23. Kaye Lee

    MichaelW,

    A book takes more devotion than those of us who have to earn a living can spare. I note that politicians seem to have endless time on their hands to write books, and sequels, whilst they collect salaries PLUS expenses or ridiculously generous retirement entitements from us.

    Your personal experience is important which is why the commenters on the AIMN are so valuable.

  24. Kyran

    Can I just check if I have this right?
    Talcum needed to go to an early election due to the urgent and significant need for this (plus the Registered Organisations Bill) legislation. Matters of such urgency and significance that an election was required immediately (well, after a few months, like May to July). The notion that neither piece of legislation was canvassed in any detail during the campaign makes it sound more like expediency than urgency. Possibly cynical, on my part. It’s not like the rest of us wanted to discuss other issues, is it?
    Having won the election by a landslide, he had to mangle both the intent and content of his precious legislation by negotiating with phony’s. The ‘real’ PHONy, the wannabee Xeno-phon’y, and the ultimate phony’s, layonhim and hunch.
    “We took it to the election, we had the courage to prorogue the Parliament and bring the Parliament back, forced the Senate to vote on it, dissolve both houses of Parliament, fought an eight-week campaign on it and now we have secured the support of the Senate.”
    Ah, talcum, you are a legend!
    Now he, and his miniatures, have made a careful distinction. Those reliant on such nonsensical notions as protection (whether it be wages, WHS, payment for services rendered, welfare, or any of the other issues raised in your article) are little more than criminals. Only criminals need protection. It’s a law and order issue. We need these building companies. Who else can build the prisons we need to house these miscreants in? Just because the builders need protection, that doesn’t make them criminals. It just means they need to be protected from the criminals. See? No harm, no foul.
    If I have this right, and you have swallowed this whole, there is a bridge in Sydney that is up for sale. Call me, we can talk terms.
    Thank you, Ms Lee, and commenters. Take care

  25. wayne johnson

    this says a lot when we have as our pm is being backed by a criminal my god the bullshit that comes from this pms mouth great pic
    you welcoming the criminal murdoch to our kirribilli house what did he come to give you your orders destroy the unions and workers rights you have lied to us the taxpayers ever since the lnp got in you everyone hoped you would have a backbone but it wasnt to be and this abcc wont want to target these workers the lnp has a been targeting the rights of workers since the unions were there protecting their rights who you want this abbcc to cut the workers pays dont you its not you that wants the abcc its your head backer rupert murdoch he hates the unions since they drove from the country years back we dont like you or your lying government

  26. LOVO

    *raisedeyebrowsmiley* 😆

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