Cole Commission – recommendations and findings

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Cole Commission – recommendations and findings

The Cole Royal Commission has proposed special legislation and regulatory agencies in a bid to bring about structural and cultural reform in the industry, which the report says is urgently needed.

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The Cole Royal Commission has proposed special legislation and regulatory agencies in a bid to bring about structural and cultural reform in the industry, which the report says is urgently needed.
 
The Commission publicly released its recommendations and findings relating to the building and construction industry in Australia today (27 March 2003). This was the second and final set of volumes of the report.
 
This Royal Commission was the first national review of the conduct and practices in the building and construction industry in Australia.
 
The full text of the 23-volume report can be accessed online.
 
To unlock the potential benefits in the industry the Commission stated that productivity must increase. To achieve this, structural and cultural reform is necessary.
 
Principal recommendations were:
  • Special legislation to amend aspects of the Federal Workplace Relations Act 1996 as it applies to the industry.
  • The creation of the Australian Building and Construction Commission (ABCC) to oversee the industry. This body would be responsible for monitoring conduct in the industry, and prosecuting unlawful industrial action, breaches of freedom of association laws, and addressing all complaints of unlawfulness in the industry.
  • The establishment of a Commissioner for Health and Safety in the Building and Construction Industry to monitor OHS on all projects on which the Commonwealth is the client, or to which it provides funds.
  • The development of a code of conduct and practice for labour-hire in the industry.
These and other recommendations are outlined in more detail below.
 
Reform package recommended
 
The reform package recommended includes the following elements:
 
Legislation
  • An Act of special application to the building and construction industry, called the 'Building and Construction Industry Improvement Act'.
  • This Act will amend aspects of the  Federal Workplace Relations Act 1996 as it applies to the industry. It will also legislate for many other reform proposals.
New regulatory body
  • The creation of the Australian Building and Construction Commission (ABCC). This body will be responsible for monitoring conduct in the industry, and prosecuting unlawful industrial action, breaches of freedom of association laws, and addressing all complaints of unlawfulness in the industry. It will become a ‘one stop shop’ for all complaints. It will have the power to commence proceedings to restrain unlawful industrial action, and to restrain secondary boycotts.
  • The ABCC will monitor performance of the National Code of Practice and the Implementation Guidelines.
Bargaining and agreements
  • The abolition of pattern bargaining in the industry;
  • The rendering void of unregistered project and industry agreements;
  • The implementation of genuine bargaining at the enterprise level;
  • The introduction of industrial democracy at the enterprise level.
Contractors
  • The Commonwealth dealing only with contractors and sub-contractors:
(a) who are pre-qualified as exhibiting excellence in OHS;
 
(b) who agree to adhere, and do adhere to the National Code of Practice for the Construction Industry as amended, and Commonwealth Implementation Guidelines.
  • Those obligations will attach to:
(a) all projects in which the Commonwealth is the client;
 
(b) all projects which the Commonwealth funds in whole or in part;
 
(c) all other projects of the contractor and sub-contractor, not merely those on which the Commonwealth is the client or for which it provides funds.
  • Legislation to improve security of payments to sub-contractors.
OHS
  • The establishment of a Commissioner for Health and Safety in the Building and Construction Industry to monitor OHS on all projects on which the Commonwealth is the client, or to which it provides funds.
  • Improved measures to reduce avoidance of the payment of workers’ compensation premiums.
Unlawful industrial action
  • A clear definition of unlawful industrial action;
  • Where conduct occurs which might constitute unlawful industrial action:
(a) it must immediately be notified to the ABCC;
 
(b) if loss is occasioned, the quantum and details of such loss must be advised to the ABCC within 14 days; and
 
(c) an independent body of assessors will assess and certify loss suffered, with the certificate of such loss being prima facie evidence of loss in recovery proceedings;
  • If the ABCC prosecutes for a penalty for engaging in unlawful industrial action, and such action is established, then:
(a) a penalty will be imposed on the party found to have engaged in such conduct; and
 
(b) the victim of loss may join in such proceedings and recover any loss suffered as certified;
  • Registered organisations will, by statute, be responsible for the acts of officials, employees, organisers and delegates, and for the consequences of their acts, such that loss caused by officials, employees, organisers and delegates will be recoverable from the registered organisations; 
  • Officials, organisers and delegates who engage in unlawful conduct, including unlawful industrial conduct, failure to adhere to legislated or agreed dispute resolution clauses, or disobedience of orders of the AIRC or a court, may, on application of the ABCC, be disqualified from holding any position in a registered organisation;
  • Registered organisations will be responsible for ensuring that their officials, organisations and delegates are aware of the rights, obligations and entitlements attendant upon holding such positions. Failure to do so has serious consequences.
Powers of entry
  • Clarification and definition of the circumstances in which powers of entry and inspection may be exercised. The ABCC will be given notice of all notices to enter and inspect before such entry occurs. This will enable it to attend and determine if the employer has committed any breach, and ensure the right of entry and inspection is properly exercised;
  • The ABCC having the power to seek suspension or cancellation of permits to enter and inspect where such permits are abused. The ABCC also having power to prosecute for a penalty in defined circumstances.
Freedom of association
  • Clarification and expansion of freedom of association protection;
  • Conferring upon the ABCC the power to make applications to the Federal Court for orders in respect of contraventions of freedom of association;
  • prohibiting coercion in relation to the employment of particular persons or employment to particular positions.
Awards
  • Simplification of award allowances;
  • Removal of constraints in awards regarding the commencing and finishing times for work, the days on which work may occur, and the days upon which rostered days off (RDOs) must be taken;
  • Conferring upon the AIRC, in relation to awards, the power to determine the maximum number of overtime hours a worker may perform in a week.
Labour-hire
  • The development of a code of conduct and practice for labour hire in the industry.
Tax
  • Encouraging the states and territories to adopt measures to prevent evasion of payroll tax obligations;
  • The sharing of information between Commonwealth, State and Territory revenue authorities with the objective of preventing the avoidance of revenue obligations;
  • The sharing of information between the Australian Securities and Investment Commission and the Australian Taxation Office with a view to eliminating or diminishing phoenix company activity;
  • Improved measures to reduce tax avoidance.
Wages and superannuation
  • Provisions regarding the distribution of recovered wage claims;
  • Improved measures to enhance payment of superannuation entitlements;
  • Improved measures for the recovery of unpaid wages and entitlements;
  • Provisions to provide real choice by an employee as to the superannuation fund into which he or she wishes the contributions to be paid.
Training
  • Improved measures to encourage training, school-based traineeships and apprenticeships in the industry.
Other recommendations
  • Measures to encourage the employment of women in the industry;
  • Prohibition upon registered organisations alienating assets or income so as to defeat creditors, or persons to whom they cause loss by unlawful industrial action;
  • Improved transparency in the published accounts of registered organisations;
  • Surpluses in redundancy funds to be retained for payment of redundancy benefits, or to permit reduced contributions.
Other areas for possible reform
 
This Commission, in addition to considering the present law and practices in relation to establishing employment conditions, and OHS in the industry, and making recommendations for reform of those aspects of the industry, also considered and, where appropriate, has made recommendations for reform in relation to the following topics:
  • Abuses of privacy;
  • Ambiguities in the Federal Workplace Relations Act 1996;
  • Codes of practice for the building and construction industry;
  • Demarcation disputes;
  • Entry and inspection rights;
  • Freedom of association;
  • Illegal workers in the building and construction industry;
  • Inflexible practices;
  • Inappropriate employment and related demands;
  • Labour-hire;
  • Payroll tax obligations - compliance;
  • Phoenix companies;
  • Retention of wage claim amounts;
  • Security of payments;
  • Superannuation contributions - compliance;
  • Taxation obligations – avoidance and evasion;
  • Federal Trade Practices Act 1974 implications for activity in the building and construction industry;
  • Training in the building and construction industry;
  • Under-representation of women;
  • Unions acting as regulators;
  • Unlawful and inappropriate payments;
  • Workers’ compensation premiums; and
  • Workers’ entitlements.
Findings summarised — reform required in four areas
 
Firstly, structural changes are necessary to ensure that bargaining at the enterprise level occurs. At present, it does not. Pattern bargaining in this industry should be prohibited by statute.
 
Secondly, mechanisms should be in place to ensure that any participant in the industry causing loss to other participants as a result of unlawful industrial action is held responsible for that loss.
 
To achieve this, there must be clarity and certainty regarding what constitutes unlawful industrial action, the circumstances in which unions are responsible for the actions of their officials, employees, delegates and members, and the establishment of a quick, cheap mechanism for determining loss caused by unlawful industrial action. 
 
Union assets must be available to meet losses suffered by industry participants resulting from unlawful industrial action for which the union is responsible.
 
Thirdly, mechanisms must be in place to ensure that where disputes occur within the industry, such disputes are resolved in accordance with legislated or agreed dispute resolution mechanisms rather than by the application of industrial and commercial pressure. The 'rule of law' must replace industrial might.
 
Lastly, there needs to be an independent body, free of the pressures on the participants in the industry, which will ensure that participants comply with industrial, civil and criminal laws applicable to all Australians, and thus operating on building and construction sites, as well as industry specific laws applicable to this industry only.
 
Cultural reform
 
Firstly, there needs to be a recognition by all participants that the rule of law applies within the industry. The 'rule of law' requires that parties honour and implement agreements they have made.
 
Secondly, there needs to be recognition, principally by the unions but also by the major contractors and sub-contractors, that in Australia there exists freedom of choice to either join or not join an association of employees. 
 
All actions of unions, head contractors and sub-contractors which impinge upon this basic right are either presently prohibited by law or will be if my recommendations are accepted and implemented. Breaches of those laws must be vigorously prosecuted. 
 
However, there needs to be fostered an understanding and acceptance of the existence of that right within individuals. At present, that right is diminished, if not eliminated in the central business districts of the major cities, by doctrinal dogmatism on the part of unions, and commercial expediency on the part of head contractors and subcontractors. The structural changes recommended will assist this cultural change.
 
Thirdly, there needs to be an attitudinal change of participants regarding management of building and construction projects. 
 
It is the function of head contractors and major sub-contractors to manage their businesses and to assume control of the processes necessary to achieve productive and successful outcomes for the benefit, not only of their companies and employees, but also for the industry and the Australian economy as a whole. 
 
Head contractors, to a significant extent, and in critical areas have surrendered management control to the unions. It is the function of unions to represent, advance and protect the interests of their members in a variety of ways. It is not a function of unions to manage or control the operation of building and construction projects.
 
The benefits to the industry and the Australian economy from improved productivity flowing from this cultural change are very significant.
 
Lastly, there needs to be an attitudinal change to safety. This change must come from all participants – governments, clients, contractors, subcontractors, unions and workers. The new paradigm must be that projects are completed safely, on-time and within budget.
 
The Commission’s summary of the findings continued - essentially repeating the summary of findings published on 26 March, 2003 – under the analysis of individual states – see: Urgent need for reform in NSW: Cole report.
 
Comments on the industry and the players
 
The Commissioner made the following observations:
The reason why unlawfulness, in all its forms, and inappropriate conduct and practices occur,is because of the structure of the industry, and the different focus of industry participants. 
 
'There is a clash between the short-term project profitability focus of the providers of capital, clients, head contractors and sub-contractors on the one hand, and the long-term aspirations of the union movement, especially the CFMEU, to dominate, control and regulate the industry for its benefit, and what it perceives to be the benefit of its members, on the other hand.
 
"This clash of short-term focus with a longer-term objective usually results in those with the short-term focus surrendering to those with the longer-term objective. The short-term project driven profitability focus means that surrender to demands is the better immediate economic alternative to long drawn out conflict. It means that quick fix solutions driven by commercial expediency supplant insistence on legal rights, adherence to ethical and legal norms and the pursuit of legal remedies. 
 
'Those with longer-term objectives know that those with a short-term focus are vulnerable to delay and cost. There is thus an inequality of bargaining power, when conflict occurs. Sometimes unlawful or inappropriate conduct occurs for the sole reason of exploiting or reinforcing that power.'
Disruptions
 
'The unions with coverage of workers in the building and construction industry have the capacity to organise and engage in industrial conflict which can cause debilitating disruption to major projects with little risk of being held to account. 
 
'They have long-term objectives but often take a short-term view towards the interests of their members and the resolution of disputes. Short-term outcomes for members, such as increased entitlements or benefits, tend to prevail over long-term outcomes, such as increased employment in the industry or more flexible work practices. 
 
'Underlying much of the conduct of unions, and in particular the CFMEU, is a disregard or contempt for the law and its institutions, particularly where the policy of the law is to foster individualism, freedom of choice or genuine enterprise bargaining. 
 
'Overwhelmingly, industrial objectives are pursued through industrial conduct, rather than reliance on negotiation or the law and legal institutions.
 
'The unwillingness and incapacity of head contractors to respond to unlawful industrial conduct causing them loss is due, principally, to two structural factors. 
 
'The first relates to their desire to be long-term participants in the industry. To be so, having regard to the competitive nature of the industry and the low profit outcomes, requires them not only to address the short-term focus on profitability of a given project, but to consider the long-term relationship with union participants. 
 
'They know that unless there is significant acceptance of union demands, there will be continuous industrial disruption on other current and future projects. Clients, including governments, who are major participants in the industry, will not select contractors who are unable to deliver projects on time and within budget. The prospect of industrial disruption is a disqualifying feature for the obtaining of future work, and thus being a long time participant in the industry. 
 
'This is well understood both by the contractors, and by the unions. It places enormous power in the hands of unions. It encourages unions to use that power to obtain otherwise unattainable outcomes. The threat of the use of power is as effective as its exercise.
 
'Each of the unions and the contractors know this and factors this circumstance into their relationships.'
Weakness in the mechanisms for enforcing laws
'The second structural factor is the weakness in the mechanisms for enforcing laws of general application, including the criminal law, the industrial law, especially the Federal Workplace Relations Act 1996, and the civil law for recovery of loss caused by unlawful action. 
 
'The industrial tribunals and court mechanisms are too cumbersome, too uncertain and too expensive. This results in the mechanisms being under-utilised. 
 
'Further, there is no entity whose function it is to ensure that the industry operates within the law.
 
'Financiers and clients, be they government or private sector, do not wish to accept risks of delayed construction. They usually require that risk to be accepted by the head contractor. Head contractors are thus liable for heavy liquidated damages for delayed completion. 
 
'In addition, delays result in additional standing and overhead charges being incurred.
 
'Accordingly, head contractors seek to avoid a delayed construction process. They know, as does the union, what the costs of those delays are. Head contractors seek to assign the risk of delay to subcontractors. Sub-contractors normally provide 90% to 95% of the labour to do the construction work. 
 
'Head contractors provide little labour, but manage the construction process. The assignment of risk to subcontractors means that they also are vulnerable to liquidated damages for delay in their subcontract work.'
Union control
'It is against this structure of pre-planning, dependent interrelationships, and flexible requirements that contractors and sub-contractors confront the unions’ desire for control of major projects, rigidity and uniformity of wage and conditions outcomes, and the recognised potential of unions through industrial action, either lawful or unlawful, to cause them loss. 
 
'It is against this background that unions sought pattern enterprise bargaining agreements with commonality of wages and conditions, fixed hours of work, fixed rostered days off (RDOs) and limited flexibility. As will be obvious, the more rigid the employment structures, the greater potential to impact upon productivity on a given project, or in the case of sub-contractors, who frequently work concurrently on many projects, on those projects.
 
'Head contractors and sub-contractors recognise the real risk of loss. They also recognise that even if the loss be caused by unlawful industrial conduct, the reality is, at present, it is irrecoverable.
 
'The potential for loss from standing charges and liquidated damages is readily assessed.
 
'Head contractors and subcontractors know the potential loss suffered from a delay. They can assess the cost of demands made by unions, whether lawful or unlawful. They take a pragmatic commercial decision whether to concede the demands or not, based on economic criteria.
 
'The subcontractors in the building and construction industry are typical of small business in Australia. Of the 692,800 people who are engaged in the industry, 248,100, or 36%, are sub-contractors or ‘own account workers’. 
 
'Less than 25% of the total workforce belongs to a union. 
 
'These figures are indicative of an industry where more than three-quarters of the workforce do not wish to be involved with unions, and more than one-third have an attitude of independence and self reliance. 
 
'However, most sub-contractors are small with 94% employing fewer than five employees. They are frequently undercapitalised and depend upon continuous cash flow for their continued existence. They are thus immensely vulnerable to disruption to their work flow. They have no prospect of resisting union demands or, at present,of recovering losses suffered from unlawful industrial action by unions.
 
'The legal processes at present available to enforce industrial or civil rights, and to recover losses are slow, cumbersome and expensive. 
 
'Whilst losses from unlawful industrial action may be immediate, recovery of those losses may take some years.
 
'The culture of disregard for the law is fostered because of the short-term project profitability focus of all those in the industry, other than the unions.'
Past attempts at reform
'This failure is due, principally, to two factors.
 
'First, there has been an insufficient determination on the part of government to establish structures which will enable the industry to operate fairly and productively and in a manner respecting the rights of individuals. 
 
'There has been an inadequate structure to enforce the law and usual standards applicable in other industries. 
 
'Second, there has been an unwillingness within industry leadership to recognise the long-term advantages of structural and cultural change, accepting instead a short-term project driven profit process.
 
'Pragmatism and self-interest have dominated.'
Focus of recommendations
'If the reforms recommended are adopted and implemented, the mechanisms will be in place to restore the rule of law to the building and construction industry. Those who breach the law will be prosecuted and penalised. The penalties will be significant.
 
'Those breaching the law will find they can no longer participate in the industry. Those who disregard proper standards of behaviour expressed both in an Act of special application to the building and construction industry, provisionally called the 'Building and Construction Industry Improvement Act', or do not adhere to codes of practice for the industry, will be denied Commonwealth work if they are contractors or sub-contractors. 
 
'Losses caused by unlawful industrial action will be immediately assessed by independent assessors and will be recoverable from those causing loss by an abbreviated form of legal proceedings. No longer will there be any excuse for those who say they suffer loss, not to recover it from those who cause it.
 
'I have also recommended the establishment of an independent commission, provisionally called the (ABCC), to monitor conduct in the industry. There will be obligations imposed upon contractors, sub-contractors, union officials and workers to advise the ABCC of possible unlawful conduct, be it underpayment or non-payment of wages, taxation avoidance, departures from proper standards of OHS, breaches of freedom of association provisions, unlawful industrial activity, or any other form of unlawfulness. 
 
'It will be the responsibility of the ABCC either itself to address this unlawfulness, or where there is another State or Federal body more suited to its investigation, to refer the matter to that body but with the obligation to monitor and ensure any complaint is properly addressed. This body will remove any reason that any participant in the industry hasto engage in unlawful or inappropriate conduct. It will also ensure that unlawful conduct comes to the attention of an entity established to ensure the law is adhered to.
 
'A major task of the ABCC will be to enforce a new statutory normwhich specifies, with clarity, what industrial conduct is unlawful. The statutory norm specifying unlawful industrial action simplifies and clarifies the existing law, and is expressed in terms which leave no room for misunderstanding by any participant regarding whether conduct is lawful or unlawful.'
Where to from here?
 
The Commission’s Questions and Answers are extracted below to indicate the next steps - flowing from the report.
 
Has the Government considered its response to the Report yet?
 
Reform of this sector is a priority matter for the Government during its third term, and the Government will be responding to the Report as a priority.
 
It is expected that there will be an initial response before the Budget.
 
Will the Interim Building and Construction Industry Taskforce continue?
 
The Government has already demonstrated its determination to take action about inappropriate conduct in the industry. 
 
In response to a recommendation in Commissioner Cole’s first report tabled in August 2002, an interim taskforce for the building industry has been established. The taskforce's role is to monitor conduct, and enforce industrial, criminal and civil laws in the industry. It has been in operation since October, 2002 and has offices in Melbourne, Sydney, Perth and Brisbane and is funded until 30 June, 2003.
 
The first six months of the taskforce’s operations have clearly shown that it is already having an impact on behaviour in the industry. As at 19 March, 2003 the taskforce had received 479 inquiries and two prosecutions had commenced.
 
There are a number of imminent prosecutions likely within the coming weeks. The taskforce has also referred several incidents to other enforcement agencies.
 
The Government will review the operation of the taskforce in light of its broader consideration of Commissioner Cole's recommendations.
 
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